Invoices vs. Receipts for Your Business: What's the Difference?

Store employee handing customer a bag and shopping receipt

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The financial paperwork that comes with running a business can be confusing, but it’s important to sort through it all. Keeping paperwork updated is a crucial aspect of maintaining accurate records and understanding your financial situation. Two especially important pieces of paperwork are invoices and receipts. Any successful business owner needs to understand the ins and outs of these documents, including when and how to use them.

Key Takeaways

  • Invoices and receipts are records of transactions between a business and a client
  • Invoices are a request for payment in exchange for good delivered or services rendered
  • Receipts are issued by a business to acknowledge the payment made by a customer after the fact
  • Invoices impact a business' accounts receivables while receipts impact cash balances
  • A business needs to maintain and track both invoice and receipts not just the money but also for tax purposes

Difference Between Invoices and Receipts

Both invoices and receipts are used to record the sale of goods or services between a business and its customers, however, the two key differences between the two is when they are generated and how they are accounted for.

   Invoices Receipts 
When Are They Used? You invoice your client after the exchange of goods or services but before the payment You use a receipt to acknowledge the payment in exchange for goods or services after it has been made
How Are They Accounted? An invoice is accounted for under the accounts receivables for your business A receipt implies a change to your business' cash balances

What Is an Invoice?

An invoice is given to a customer or client before they pay. It's sometimes referred to as a bill. think of it as a request for payment in exchange of good delivered or services rendered.

An invoice is a detailed document that itemizes products and services and calculates what a customer owes you for time, work, and materials. For example, if you’re a graphic designer who created a graphic for a client, you’d invoice them for the time it took you to create the graphic. If you had to buy a photo to include in the graphic, you’d include that in the invoice, too.


As a business, you might receive an invoice, as well. If you use vendors or contractors to help with any aspect of your business, such as a virtual assistant, you can expect to see an invoice from them.

What to Include on an Invoice

To ensure your customer or client is clear about the cost you’re asking them to pay, it's important to be extremely detailed with your invoices. While requirements and formats vary by each business, every invoice should, typically, include:

  • Your company name and client’s name, along with addresses
  • The date the invoice was created, which is crucial for timely payment
  • Date(s) and description of the products or service provided, including the price of each, and the total quantity ordered
  • Any deposits, prepayments, or any other fee paid upfront
  • Any special rates or bonuses you offered
  • Sales tax, if the transaction involved a tangible item that's subject to a state's sales tax

Just to keep the communication transparent, you could also include the following:

  • Any penalties or late fees (this is especially important to include on follow-up invoices when the initial invoice isn't paid on time)
  • Terms of payment, including method and due date. This aspect should include phrases like “make checks out to…” or “send money through PayPal to…” or "net 30 days,” which means it should be paid within 30 days

How to Create an Invoice

Many accounting and bookkeeping tools for small businesses make it easy to generate an invoice.


The advantage of using an accounting software is that it can not only help you create the invoice, but you can also use it to send a digital invoice in addition to keeping track of whether or not it’s been paid.

When it's paid, the data can be automatically added to a category of your finances, such as Accounts Receivable or Accounts Paid. If you don't want to use specialized accounting software, you can most likely find an invoicing template on whatever word processing program you use.

How to Deliver an Invoice

Invoices can be delivered in person, by mail, or through email. You may use email as a default, but then decide to send one by mail to a client or customer that is late in paying. When in doubt, use multiple methods. Getting paid is a crucial aspect of your business, so spare no effort in getting the invoice on the right desk.

Unpaid Invoices

Since you know how important it is to get paid, you should strive to immediately pay any invoice you receive. It’s bad business not to honor the contracts you made with others. Even a delay in payment can reflect badly on you and your business.

If you’ve invoiced a client or customer who hasn’t paid, you have several options:

  • Send a second invoice with a “due now” notice. Invoices do occasionally get lost, and a missed payment may not be malicious. Sending a reminder may be all that is needed. Make sure that all your invoices are clear about when payment is due.
  • Take the client or customer to small claims court. This would only be advisable if you are owed a large amount, as going to court is expensive.
  • Send the debt to a collection agency. If you’re willing to give up some of the money from the invoice, you can involve a debt collection agency that will work to collect the money in exchange for a percent of the payment.
  • Write off the non-payment as a loss on your taxes.

For small bills, writing it off will be the easiest, but if you have a large bill, court or a collection agency can help. And, just in case you're considering it, you shouldn’t continue to work with a client that doesn’t pay.

What Is a Receipt?

Receipts are issued once your client or customer has paid their invoice. It’s essentially proof of purchase. If you slip up and accidentally send a second invoice, your customer can use a receipt to prove that they have already paid what they owe you. Along with providing receipts to your clients and customers, you should save any that you receive concerning your business.


Your receipts make it easy to calculate your business expense deductions at tax time. If the IRS ever questions any part of your taxes, receipts will help prove that you weren't abusing the tax code.

What to Include on a Receipt

While invoices require specific information by law, there is no standard for what goes on a receipt. What appears on a receipt can vary from business to business. It can be as simple as a handwritten note that says "so-and-so has paid this amount," or as complicated as an invoice. Ideally, it should have information about what was paid for, the date it was paid, and how it was paid (although it shouldn’t have specific payment data such as credit card numbers). Some businesses just re-create the invoice and put "PAID" on it.

How to Create a Receipt

Similar to invoices, there are a variety of ways to create a receipt. If you’re using a bookkeeping program, it can generate a receipt when you log invoice payments. Word processors likely have a template you could use to generate a receipt once you've been paid. As mentioned earlier, it can even be as simple as jotting a note on a piece of paper by hand.

How to Deliver a Receipt

Ideally, receipts should be given immediately upon payment. If one isn’t automatically created and delivered, you want to create it and send it as quickly as possible. Like invoices, they can be given in person, emailed, or mailed.


When you deliver a receipt, make sure you mark the payment in whatever accounting system you use.

If you’ve received a receipt for payment on products or services related to your business, file the receipt and mark it in your accounting system. This information will help you stay updated on your financial situation and maximize your tax deductions.

Frequently Asked Questions (FAQs)

How do you file invoices and receipts?

There are two main aspects of organizing invoices and receipts— filing and accounting. If you're using paper invoices and receipts, you will need to come up with a filing system that not only helps you organize them in chronological order but can also help you keep track or payments and in easy reconciliation of the numbers. Using an accounting software can be beneficial in this regard, since it can do all of those things.

How do you create an invoice?

An invoice is a request for payment for goods delivered or services rendered. It should, typically, include detailed information about the transaction such as the name of the product or service, its price per unit, total price, any pre-payment or discounts and sales tax, if applicable. It should also include the name of your business, the invoice date and the date the transaction occurred. Each business may have its own specific formats or requirements for invoices.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Stephen L. Nelson. 'Quickbooks 2020 for Dummies," Chapter 5. John Wiley & Sons, 2019.

  2. University of Washington Procurement Services. "Invoicing."

  3. Better Business Bureau. "BBB Business Tip: A small business owner's guide to collecting unpaid debts."

  4. Internal Revenue Service. "What kind of records should I keep."

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