Most employees know that receipts and invoices are documents that are important to the accounting department. At the same time, they incorrectly use the two terms interchangeably and have a hard time understanding their differences. In this blogpost I will try to explain what invoices and receipts are, how they are different and why they are important for your business.
The most user-friendly definition of an invoice (bill) that I have come across so far is the one by Investopedia :
An invoice is a time-stamped commercial document that itemizes and records a transaction between a buyer and a seller. If goods or services were purchased on credit, the invoice usually specifies the terms of the deal and provides information on the available methods of payment
Each invoice clearly states on the face of the document that this is an invoice and provides details on the following items:
There is also a different type of invoices called pro-forma invoices. Pro-formas have similar items to the regular ones. The main difference between the two is that pro-forma invoices are used for advance payments to suppliers. They are issued before the actual product or service is delivered. Once the product or service is delivered, a final invoice is always issued.
Receipts serve as proof of payment that the products or services delivered have been paid by the buyer. They are always issued after payment has been made (invoices are typically issued before payment has been made). Customers normally get receipts when paying cash or with a credit or debit card. When you pay with a bank wire, you typically would not need a receipt, since the bank wire acts as proof of payment instead.
The usual information you can expect to see on a receipt includes:
The short answer here is that receipts and invoices are needed for record-keeping, tax, and accounting purposes. As mentioned earlier, a receipt is proof of payment, i.e. that goods or services ordered have actually been paid. On the other hand, your accounting department needs a valid invoice issued to your company from the supplier of those goods and services. This is required so that those expenses can be recognized on the company’s books and tax credits can be claimed. Well, there are business expenses that you should not charge on a business credit card, but that's different topic.
The question that bothers most people is when do you need to collect and submit only a receipt, and when do you need an invoice as well. And your company expense policy should be the best guide in answering that question. Normally for business trips, employees need to submit only receipts for travel expenses like taxis, meals, etc. And in most other cases, you need to submit both a receipt and an invoice issued to your company by the supplier of the goods or services. If you're interested, here's a bit more information on the benefits of electronic invoicing.
Kosio is the driving force behind Payhawk’s financial operations, strategic planning, and financial stability. With a background in management consulting and a trajectory through leading FP&A and investments, he co-founded Payhawk, earning the title of CFO of the Year in EY's awards. Outside the boardroom, he delights in tennis, snowboarding, mountain biking, and quality moments with friends, family and his two kids.