Invoice vs. Bill: What’s the Difference?

The words “invoice” and “bill” are often used interchangeably, but they have different meanings for buyers and sellers. Generally, businesses issue invoices to their customers or clients for goods and services rendered, which the latter treats as a bill (accounts payable). However, businesses can issue both bills and invoices to their clients. Invoices typically record recurring service-based purchases, whereas bills are issued for one-time purchases.

What Is an Invoice?

Invoices are commercial documents businesses issue to their clients to request payment for work by outlining the service provided and detailing the amount of money owed for the work.

Typically, a business sends an invoice to a customer after it delivers a product or service. However, depending on the terms of the agreement between both parties, an invoice can be issued after a certain project milestone or time period (e.g., once every two weeks for a long-term project). The invoice tells the buyer or client how much they owe and establishes payment terms for the transaction, helping ensure businesses receive the correct payment in full and on time.

An invoice should include the following components:

• Date: The date is crucial information as it dictates when payment is due and the credit duration (how much time the client has to pay the amount due).
• Unique ID number: This can include an employer identification number (EIN) issued by the IRS for tax purposes.
• Invoice number: Invoice numbers should be sequential, especially for recurring invoices, to avoid duplication and payment disputes (e.g., 001, 002). 
• Business contact information: Always include your name, address, phone number, and email address, along with your client’s information.
• Description of goods and services: Enter every product or service you provide as a line item in your invoices. Include price and quantity for each line item. If applicable, include the date you completed the service and a description of the service. When invoicing for the sale of a product, note how many units your customer ordered, the rate per unit, the total number of units, and the total amount due. Don’t forget to add any applicable taxes to the total amount due.
• Payment terms: Specify how much time the buyer has to pay for the purchase. The most common type of payment is Net 30, meaning payment is due within 30 days from when the invoice is received. However, you may choose to set invoice payment terms of up to three months, or Net 90, to give your customers more flexibility.

What Is a Bill?

A bill is a statement of charges outlining the amount a customer owes for goods received or services rendered. The purpose of a bill is to serve as legal evidence for the buyer and seller that a sales transaction took place. Bills are usually used for one-time, upfront payments such as a retail purchase. Unlike an invoice, billing is a method for requesting immediate payment.

Common examples include billing done at restaurants, salons, and retail stores. While invoices include detailed client information, a bill doesn’t necessarily need to include this. The bill generally should include all of the same components as an invoice, including:

• An itemized list of goods and services provided
• The total number of units purchased
• The total amount due plus any applicable taxes

Invoice vs. Bill: What’s the Difference?

An invoice is generated by the business providing a service and the customer receiving the invoice records it as a bill to be paid. From a business’s perspective, an invoice is sent while a bill is received.

The table below provides a visual comparison between an invoice and bill. 

It’s important for business owners to know the difference between a bill and an invoice in order to receive payments faster, manage cash flow, and reduce the stress of collecting payments.

Frequently Asked Questions (FAQs)