Invoice vs Receipt – Legal Documents Explained in Detail

Invoice and receipt

It can be a colossal risk if you don’t understand the meaning, differences, and similarities between these two legal document terms.

For a layperson, it may be just a term that can be used interchangeably but it makes a vast difference from the business point of view. Both are documents to record sales transactions. However, deep down they are issued for different purposes and have a significance of their own due to which invoices and receipts make essential parts of your company’s financial records.

Since most small business owners, entrepreneurs, and freelancers, fight their own battles, they need to be clear while documenting finances.

For more clarity and understanding, let’s explore both the legal documents in detail:

What is a receipt?

A receipt is basically a document issued by a seller/vendor to their customer, stating that they have received the payment. It is issued when the sale is completed and after the payment is made. Sales receipt serves as proof of payment and also acts as proof of ownership in most cases. The receipt can be either in printed form or digital form.

Businesses that use the receipt

Usually, businesses where the goods are sold and payments are done straight away, require sales receipts. It is issued on the spot. So retailers, eCommerce stores, merchants issue receipts as well as sales receipts.

Details included on receipts

A receipt is less detailed than an invoice, so it is much simpler to create. It is a legal document only to convey to the customers and serves as proof of payment made against a particular sale or service offered.

Every receipt you issue should include the following details:

  • Your business name
  • A business logo (if any)
  • Contact information
  • Itemized list of products sold or services offered
  • Date of payment made
  • Method of payment used
  • Amount paid
  • Amount pending (if any)

Receipt format/example

Receipt example

Have you ever visited any supermarket, restaurant, or grocery shop? Of course, you did. So after your purchase or having food, you pay the amount and in return, you may receive a piece of paper with a stamp ‘Paid’. That’s what is your receipt. Also when you swipe a credit or debit card to make a payment, you get a receipt from the card machine. All these are examples of receipts that serve as proof of payment made or completed transactions.

Depending on what you sell and what kind of business you run, the receipt can also be treated as an invoice or vice versa. It can be as simple as jotting details on a piece of paper or generated using readily available templates.

Why are receipts important in a business?

Not just for retailers but for any business that sells goods or services, receipts are crucial. This piece of document helps to keep a track of sales expenses. It also serves as an essential document to recover any lost income or for a tax audit.

Businesses can use receipts for filing financial reports and based on past expenses manage the business budget effectively.

A receipt is important from buyers’ perspective too. In case, if they want to reclaim VAT on a particular purchase. They can take help of the sales receipt. Also if they wish to return or exchange any purchased item, a receipt will be needed.

Can I claim expenses without a receipt?

As mentioned before, receipt acts as proof of purchase. A credit card or debit card statement is not enough for claiming expenses, a legal document like a receipt will be required. For claiming tax deductions, preferably a receipt will be needed for support.

However, there are some expenses that possibly can be claimed without a receipt. Travel-related meals or vehicle expenses are often not recorded and receipts are not maintained each time. But remember in the long run it can be a costly strategy, so better have proof of expenses.

Now, let’s switch to invoice

What is an invoice?

An invoice is basically a legal document requesting payment for the products and services. It is issued by the business to the client stating the amount to be paid. Sometimes the invoice is also sent for the outstanding bill or partial amount that has to be paid. It shows an itemized list of products and services along with its price, total amount, taxes applied.

There are assorted types of invoices serving different purposes. An invoice can be either created the traditional way – paper printed or generated digitally, using invoicing software. Most businesses have switched to the modern invoicing technique as it assures easy sending and prompt payments.

When do you use an invoice?

Every business under the sun is dependent on money. Invoice ensures you with that smooth cash flow, essential for running a business. Invoice records the transaction between a buyer and a seller. It is primarily used to make a request for payment from the customers against the products sold or services offered. It notifies the client about the total amount to be paid and the deadline to make the payment.

Invoice is also used to track the sale of goods and services. Future revenues can be estimated with the help of this commercial document.

When do you pay an invoice?

If the customer pays you on time or even pays you right now then it’s just great! To get paid faster or for prompt payments, it is very much necessary to clarify the terms of payment ahead of time.

Net 30 is the standard payment term used by most businesses of all shapes and sizes. It signifies the client needs to make the payment for the products and services within 30 days.

However, if you are expecting payment from new clients or are a freelancer then Net 30 might not work in your favor. The extended wait might be risky, especially for freelancers who don’t have many revenue alternatives. Net 15 can be the safest way to get paid faster.

List the payment terms, mention the due date clearly, and also include the payment types you accept as a business to make it convenient for the client to pay you on time or even instantly.

Details included on the invoice

Only a detailed and well-formatted invoice can help you to get paid on time.

Every professional invoice should include the following details:

  • A unique invoice number and of course the term ‘invoice’
  • Company’s name, address, and contact details
  • Client’s name, address, and contact details
  • Invoice issue date or date when the invoice was created
  • Invoice due date
  • Itemized list of products or services offered, price of each, and quantity (in case of products)
  • A clear description of charges
  • Total amount to be paid, including taxes and discount, offered
  • Payment terms and payment method accepted
  • Late payment fees or penalty charged (if any)
  • Terms and conditions
  • A thank you note

Legal requirements for invoice formatting

For an invoice to be legally recognized, along with all the details mentioned above, it is crucial to include the sales tax. Sales tax may vary from state to state, so make sure it is valid.

It is mandatory to have a logical invoice number. Tax identification number or VAT number, the VAT rate will also be included in the invoice. If you change the VAT charges, explicitly state it in the invoice. Traditional or digital invoicing, the invoice sent should comply with the statutory invoice requirements.

Invoice format/example

Invoice example

The format of the invoice differs from that of the receipt. The unique invoice number, the total amount to be paid, and the due date of payment make it different from the receipt. There are myriads of online invoicing software that helps you to create and send professional-looking invoices. Even ready-made free templates are available for download and send to clients.

Here is the proper invoice format:

  • Your business information at the top of the invoice
  • Client’s billing details below your business information
  • An invoice number, date of issue, and payment due date
  • The total amount is in bold
  • An itemized list of the products/services offered with a brief description, cost, quantity, or hours
  • A subtotal amount
  • The total amount due at the bottom of the invoice is in bold. Also, add applicable taxes and discounts

Businesses that use invoice

Right from freelancers to small businesses, medium-scale to full-fledged businesses, every work that needs to record sales transactions can use an invoice. This legal document is generally issued by sellers, merchants, traders, and vendors.

Even a bill issued by the hospital, garage, or repair shop can be stated as an invoice. Accounting departments, customer service staff, sales staff issue invoices to customers.

Difference between an invoice and a receipt

An invoice is issued before the payment is made. A receipt is issued after payment is made.

Apart from the major difference in purpose – An invoice is issued to request payment while the receipt is issued stating that payment has been made, there are quite subtle differences between both the legal documents. In short, one is requesting payment while the other is proof of payment.

Let’s give you a quick recap to understand the difference between invoice vs receipt.

DefinitionA financial document that requests payment for the product and services provided.It is also a financial document stating that the payment has been received.
Why is it used?It states how much the customer owes to the vendor.This is a legal document that proves that the customer has paid for the purchase.
When is it issued?Issued before the paymentIssued after payment
What details are included?1. Business name and logo
2. Contact information of seller and buyer
3. Invoice number
4. Invoice date
5. Itemized list of products or services provided
6. Price of each
7. Total amount
8. Discount (if applicable)
9. Taxes
10. Payment due date
11. Payment mode
12. Payment terms
1. Contact information of seller and buyer
2. Itemized list of products or services provided
3. Total amount paid
4. Date of sale
5. Payment date
6. Payment mode


Both invoice and receipt are an indispensable part of the purchase cycle. They are extremely handy and help effectively in the decision-making process and creating financial statements. Now that you know the right purpose and difference between both these legal documents, just integrate the two and keep your business in line and organized.

Divya Mudliar
Divya Mudliar
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