Table of contents
Table of contents
Most business owners will need to deal with invoices and receipts at some point. It’s useful to understand how they’re different so you can make sure you’re recording everything in your accounts correctly, and minimise the risk of HMRC dramas or a telling-off from your accountant.
The short answer is yes. In practical terms, recording your invoices and receipts correctly helps you organise your business finances. You’ll have a better understanding of how and why money flows in and out of your business, so you can operate more efficiently.
Recording business transactions and keeping documents is also an essential requirement for HMRC compliance. Any tax returns you submit are based on these records – so you can see why it’s important to make sure they’re in order!
Both the seller and the buyer benefit from having invoices and receipts thanks to the total transparency they offer. They show (or should!) how much money is owed, what for, and what has been paid already.
Having a clear record of payment and billing dates means customers know exactly what they’re being charged for. It minimises the risk of queries slowing things down, whilst making the payment deadline clearer at the same time.
Likewise, providing receipts makes it clear a payment has been received so there’s less chance of payment being sent twice. It might sound great in theory, but only if you were able to keep it! The reality is that overpayments only generate more admin, and who has time for that?
Giving a receipt to customers also makes it nice and clear what you’ve taken payment for, and what bills might remain outstanding.
Identifying receipts and invoices correctly will help you record what amount is a payment coming in to the business, and what’s a payment going out.
This means you know which payments are for allowable expenses, so you can claim the right amount against your tax bill. If you’re VAT registered then your receipts and invoices will also show where VAT is paid and collected, so you can report this correctly and either pay what you owe, or reclaim it.
Nobody wants HMRC calling for a chat, so getting everything set out clearly can seriously help.
It’s also useful (and sometimes a requirement) to make it very clear what the document is if you’re supplying goods across a border so the relevant tax authorities know what tax is due, and who to.
Receipts and invoices are quite similar in terms of showing transaction information, so it’s understandable they’re often confused. Some people even think they’re interchangeable (which they’re really not). There are some key differences between invoices and receipts that you’ll need to be aware of.
It’s also worth mentioning one more thing here: Don’t confuse invoices and receipts with purchase orders either.
A purchase order is a document the buyer issues to the seller. It describes the requested goods or services along with the quantity and price agreed. You’re basically sending the supplier your shopping list!
Invoices and receipts tend to follow a different format. Let’s look at this in more detail.
Any invoices you send must show the details of both the buyer and the seller. They generally follow a pretty set formatting pattern, with the vendor’s business name, address and phone number in one of the top corners of the page. On the other side of the page, or somewhere obvious, the details of the customer will also be displayed.
Each invoice will also have its own unique number to identify it. This makes it easier to track invoices and payments as you go along. It also helps in quickly identifying an invoice if there is a dispute or an issue with payment. You’ll be grateful for that detail if they’re shouting at you down the phone about something (but don’t take any nonsense).
In the body of the invoice, give specific details about the work carried out or the product supplied. It’s well worth giving as much detail as possible and itemising the invoice if more than one service or product was issued. Again, it means you have a very detailed record of exactly what must be paid for.
Finally, you should also include any payment terms, such as discounts for paying early or in cash. This should be shown alongside the payment due date and your firm’s bank details if payment is to be paid made by BACS. Other acceptable payments can be shown here, and it should also be clear if any VAT applies and if so, how much VAT is being charged.
Receipts are usually less detailed than invoices but they are just as important. They usually show the name and contact details of the business at the top, alongside the amount paid and the method of payment used.
The date of payment should also be displayed, although (unlike invoices) details of discounts, unit prices or descriptions may be left off unless requested specifically, or unless you prefer to give the details.
If your business issues paper receipts then it’s worth thinking about what details to include. Physical copies tend to get thrown away or left behind, but personal details can lead to identity theft so keep them to a minimum.
It’s pretty much universally agreed that keeping a log of all your invoices and receipts gives you a much clearer understanding of cash flow, and the financial health of your business in general.
But does anyone really want to spend their time copying information they’ve already entered into an invoice over into their bookkeeping?
Look for accounting software which has an invoicing function included, so any documents you create are automatically included in your records. Did we mention that’s one of the things Pandle can do for you? Because that is one of the things Pandle can do for you.
Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.
I'm fully AAT qualified, with a passion for straightforward bookkeeping. In my spare time you'll find me using my Everton season ticket.
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