Client asks for a receipt. You send an invoice. They ask again. You send the same thing with "RECEIPT" at the top. Everyone's confused.
This happens constantly because invoices and receipts look similar and serve related purposes. But they're fundamentally different documents, and mixing them up creates accounting problems, tax issues, and awkward client conversations.
Here's how to tell them apart and use each correctly.
The Core Difference
The distinction is simple once you see it:
- Invoice — A request for payment. Sent before payment is made.
- Receipt — Proof of payment. Sent after payment is made.
That's it. An invoice says "here's what you owe." A receipt says "here's what you paid."
The confusion arises because both documents contain similar information: your business details, the client's details, what was purchased, and the amount. But they serve opposite ends of the transaction.
When to Use an Invoice
Send an invoice when:
- You've completed work and need to request payment
- You're billing for products before or after delivery
- You have payment terms (Net 15, Net 30) rather than immediate payment
- You need a formal record of what's owed
Invoices are standard for B2B transactions, freelance work, and any situation where payment happens after the service or product is delivered.
What Goes on an Invoice
- Your business information
- Client's information
- Unique invoice number
- Invoice date and due date
- Itemized list of products/services
- Subtotal, taxes, and total amount due
- Payment terms and accepted payment methods
When to Use a Receipt
Send a receipt when:
- You've received payment (full or partial)
- The client needs proof of purchase for their records
- You're providing documentation for expense reports or tax purposes
- Payment happened at point of sale (retail, restaurants)
Receipts are most common in retail where payment happens immediately. But service businesses should also send receipts—clients often need them for their own accounting.
What Goes on a Receipt
- Your business information
- Client's information (if applicable)
- Receipt number
- Date of payment
- Description of what was purchased
- Amount paid
- Payment method used
- Reference to original invoice (if applicable)
The Complete Transaction Flow
Here's how invoices and receipts work together in a typical service business:
- Complete the work — You deliver the service or product
- Send an invoice — Request payment with details of what's owed
- Client pays — They send payment via your accepted methods
- Send a receipt — Confirm you received payment (or mark invoice as "PAID")
Some businesses skip the separate receipt and simply mark the invoice as "PAID" when payment clears. This is acceptable, but a dedicated receipt provides cleaner documentation.
Why the Distinction Matters
For Your Accounting
Invoices represent accounts receivable—money owed to you. Receipts represent completed transactions. Mixing these up throws off your books:
- Counting unpaid invoices as revenue overstates income
- Sending receipts before payment misrepresents cash flow
- Tax reporting requires accurate timing of income recognition
For Your Clients
Your clients have their own accounting needs:
- Invoices go to accounts payable—something they need to pay
- Receipts go to expense records—proof they paid
- Their accountants and auditors expect proper documentation
Sending the wrong document creates extra work for everyone.
For Taxes
Tax authorities care about when money actually changed hands, not when it was requested. Proper invoices and receipts provide the paper trail that proves your income timing.
What About "Paid" Invoices?
Many businesses mark invoices as "PAID" instead of sending a separate receipt. This works fine if:
- You update the original invoice clearly
- You include the payment date and method
- The client doesn't specifically need a separate receipt document
The "PAID" invoice approach is simpler and avoids managing two document types. Just make sure the payment status is unmistakable.
Common Mistakes to Avoid
- Sending a receipt before payment — This implies they've paid when they haven't
- Using "invoice" and "receipt" interchangeably — They're not the same
- No invoice number — Makes it impossible to reference in discussions
- Unclear payment status — Client shouldn't have to guess if they've paid
- Not keeping copies — You need both invoices and receipts for your records
What About Bills?
A "bill" is essentially an invoice, but the term is typically used when payment is expected immediately or within a very short timeframe. Think restaurant bills, utility bills, or medical bills.
In practice:
- Invoice — Professional/B2B term, payment terms may apply
- Bill — More casual, often implies immediate payment
- Receipt — Always means payment has been made
Templates: Invoice vs Receipt
Here's a quick comparison of what each document typically looks like:
Invoice Header
- "INVOICE" prominently displayed
- Invoice number: INV-2024-001
- Invoice date: December 28, 2024
- Due date: January 27, 2025
- Status: (blank or "UNPAID")
Receipt Header
- "RECEIPT" or "PAYMENT RECEIPT" prominently displayed
- Receipt number: REC-2024-001
- Payment date: January 15, 2025
- Reference: Invoice #INV-2024-001
- Status: "PAID"
How Invoicing Software Handles This
Manual tracking of invoices and receipts gets messy fast. Good invoicing software should:
- Generate unique invoice numbers automatically
- Track payment status (unpaid, partial, paid)
- Let you mark invoices as paid when payment arrives
- Generate receipts or "paid" invoice copies
- Keep everything organized for tax time
IronBase handles this workflow for a one-time $79 purchase. Create invoices, track payment status, mark them paid—no subscription required. Your data stays on your computer, organized and ready when you need it.
Key Takeaways
- Invoice = request for payment (sent before payment)
- Receipt = proof of payment (sent after payment)
- Both are necessary for proper accounting
- Clients may need receipts for their own records—send them when paid
- Marking invoices as "PAID" is an acceptable alternative to separate receipts
- Keep copies of everything for tax purposes
Get the basics right, and you'll never have another confused conversation about which document someone needs.