Invoices Versus Receipts: What is the Difference?

Invoices and receipts may seem similar because they both relate to payments but there’s a critical distinction that business owners and aspiring bookkeepers need to know. This guide will help you learn the difference.

What is an Invoice?

An invoice is a document a business sends to a customer seeking payment for goods or services. It’s sent after services or goods have been delivered and before the customer or client has paid for it. 

The customer details you’ll need for an invoice typically include: the customer’s name, address, contact details and an Australian Business Number (ABN) if the purchaser was a business.

The invoice usually includes a description of the goods or services that were delivered and how much the customer owes you and the terms of payment such as the due date of payment and payment methods. Most countries have a sales tax, such as GST or VAT, which are also included on the invoice.

What is a Receipt?

A receipt is a document a business sends to a customer after the customer has paid for goods or services. The customer can use the receipt as proof of payment. You probably have received a receipt after buying groceries or clothing and understand that if you want to return any items that you must have the receipt as proof of purchase.  

The customer details on a receipt typically include: the customer’s name, what was purchased and the amount that was paid. Receipts may also contain information about the method of payment.

Receipts allow business owners to keep track of their expenses and are often used for tax purposes and tax audits. 

When to Use Invoices and Receipts?

So in summary, invoices and receipts are used for different purposes. The purpose of an invoice is to seek payment, while the purpose of a receipt is to provide proof of payment. The seller sends the buyer an invoice after a job has been done.

A receipt on the other hand, is sent to the buyer after payment has been made. Businesses often hold onto receipts of purchases they have made to keep track of expenses but also for tax purposes.  

If you want to learn how to create and send a customer invoice in Xero, here is our helpful guide and video tutorial. If you want to know how to send a receipt in Xero, check out this guide and video tutorial.

Disclaimer: Our articles and videos are here to inform you and the information provided does not constitute financial, taxation, legal, business or other professional advice and should not be relied upon as such. See our full disclaimer here.

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