If you step out in the market often and interact with businesses or any transactions, you’d have encountered the terms‘ invoice‘ and ‘bill’. Businesses, accountants, and customers often use these two terms interchangeably.
Though they do have some commonalities, they surely aren’t identical.
If you are a business owner and wish to have some assistance in invoicing, make sure to head over to ProfitBooks. ProfitBooks is your one-stop solution for all your invoicing needs.
In this article, we will go through everything around invoices and bills. By the end of the article, you will clearly understand what invoices and bills are. Not only this, but you’ll also have a proper understanding of other transaction receipts and their differences.
Before understanding the differences between an invoice and a bill, knowing what these documents are for is necessary. Let’s go through that one by one.
What is an invoice?
An invoice is an official document issued by a business to its customers for the goods and services provided. In other words, a seller uses an invoice to request payment from a buyer.
While issuing an invoice, a business generally gives a period for the customer to clear the payment. This period usually varies around 30-90 days. In this way, the customer receives a short-term credit for the decided payment term for the goods purchased.
Components of an Invoice
A typical invoice generally contains the following components.
- Date
- Invoice Number
- Unique ID Number
- Description of goods and services
- Business contact information
- Payment Terms
When an Invoice is Sent
An Invoice is used to request payment for provided goods and services. Hence, an invoice is something that is issued before payment.
Following are some types of invoices that you might encounter in the market.
- Standard invoice: Simple document used for billing your goods and services.
- Commercial invoice: An export document serving as legal evidence of the transaction.
- Recurring invoice: Used to bill customers for ongoing and continuous services. Used for subscription-based businesses.
- Tax invoice: Invoice issued for taxable supply of goods and services.
- Pro-forma invoice: A preliminary bill or an estimated invoice used to request payment from a committed buyer.
- Interim invoice: While managing cash flow for large jobs, a business uses interim invoices to cover some bits of the large costs.
- B2B and B2C Invoice: Business to Business and Business to Customer invoices.
Importance
Invoices turn out to be crucial documents for accounting, financial reporting, and taxation requirements. They need to be handled appropriately and professionally. Remember that once an invoice is finalized, one should not delete it.
An authentic invoice is legal proof of a signed agreement between a buyer and a seller. It is important to avoid making any mistakes, as an invoice can protect a merchant from fraudulent lawsuits.
Example: If you are a seller, you will issue an invoice to the buyer for all the goods and services you offered. The most common cases where an invoice is used are inventory tracking of a business, requesting timely payments from customers, delivering goods to a client, etc.
For someone just starting a small business, handling these legal documents without making any invoicing mistakes can be a little too much. During such situations, you’d need some authentic and reliable source of help; that is ProfitBooks.
ProfitBooks is easy-to-use online accounting software for small businesses to manage their finances and stay on top of their cash flow. It is your one-stop solution for all invoice-related and accounting software needs.
It has got it all, from strong accounting features to inventory management. You can create professional invoices in multi-currency, manage business expenses, and track bank account movements and the status of invoice.
What is a bill?
A bill is another legal document that talks about the amount that a customer owes to the vendor. Bills contain details such as the amount charged for a sale, including the taxes, if any. They are often issued for a cash transaction completed in one go and often serve as proof of transaction.
Components on a Bill
Most of the components included in an invoice are often seen in a bill. Though there are a couple more components that are reflected in a bill. They include:
- A list of goods and services provided
- Total number of items or units purchased
- The total amount, including the taxes, if any
When a Bill is Used
A bill is treated as a record of the purchases of a buyer’s goods and services. Bills act as a reminder for the payments that are yet to be done.
Bills are often considered less formal than invoices as they’re commonly used for transactions made in one go.
Importance
Although a bill includes a lot of similar information to an invoice, the payment is the primary focus of a bill. Unlike invoices, bills cannot be recurring but can be used only once.
Example: If you go to a shopping mall, you’ll receive a bill and not an invoice at the counter for all the items that you have purchased. You will be asked to pay the bill immediately.
You will find examples of billing at places like shopping malls, restaurants, departmental stores, etc.
Other types of transaction receipts that you might have come across
Here are some more terms you might have heard somewhere and found synonymous with invoices and bills.
1. Receipt
People often think of a receipt and a bill as the same thing. A receipt is issued after payment is done as proof of the payment.
2. Expense report
Sometimes, an employee needs to pay out of pocket for business goods. This amount gets paid later as reimbursement by their employer. For this to happen, an employee must submit an expense report stating all their expenditure.
3. Statement
A statement is something that a customer asks a business owner. Businesses often send their customers a statement, including past sales transactions, credits, or payments.
Invoice vs. Bill: What’s the difference, and what’s in common?
Now that we have clearly understood all the transaction receipts and the functionalities of an invoice and a bill let us dive into their differences. The same document can be referred to by the terms’ invoice’ and ‘bill’. Therefore, people often find it confusing.
It’s all about perspective. The same document that you (as a buyer) treat as a bill is treated as an invoice by the vendor. Let’s take the help of an example.
Suppose that you bought a computer from a local shop nearby. The shop owner would send you an invoice for that purchased computer, including the necessary details. To pay the amount that you owe for the computer, you would receive this invoice as a bill. After you are done with the payment of the bill, you will receive a receipt from the shop owner as proof of the payment.
An invoice is generally treated as a legal document used for financial reporting. In comparison, a bill acts as a proof of transaction. An invoice refers to a specific document type, whereas a bill is used more as a generic term.
Although both the documents, more or less, contain very similar information about a business transaction, they just aren’t the same.
Sample Invoice and Bill
This sample invoice generate from ProfitBooks will help you understand how an invoice format is supposed to be. The same document will be treated as a bill by the buyer or the customer.
Conclusion
Like many countries, India, too, has a couple of laws governing the issue of invoices and bills. For example, the goods and services tax or GST has many laws associated with invoicing formats and specific mandatory fields. Moreover, from 1st October 2020, India has made mandatory e-invoicing requirements.
All this can seem confusing and cumbersome if you aren’t equipped with all the information and resources. But you don’t need to worry when you have assistance from ProfitBooks.
ProfitBooks can take care of all your invoicing needs and track your bill payment status. The modern accounting software helps you speed up, automate, and smoothen up the invoicing process to get paid without any delay.
You can use premade invoice templates and enjoy complete freedom over your invoices. You can also connect ProfitBooks with a payment gateway and start accepting online payments from your customers when you bill them.
Find out how ProfitBooks can help you with your accounting needs! Create your account for free today.
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