As a small business owner or freelancer, you’ll have heard of receipts and invoices and probably even sent a few. But do you know the exact difference between the two? 

The truth is, there are some key differences between the two terms that you need to be aware of. This guide will help you understand invoices and receipts by answering the following questions:

  • What is a receipt?
  • What is an invoice?
  • What is the difference between an invoice and a receipt?
  • How do I issue invoices to clients?
  • How do I manage my business receipts?
  • How Countingup helps you manage your invoices and receipts

What is an invoice?

An invoice is a document that a business sends to a customer or client to request payment for purchased goods or services. You use invoices to make sure you get paid for your work. Invoices will include details of the products or services and information about the two parties involved in the transaction, meaning you and your customer.

Here are some examples of invoice types small businesses tend to use:

  • Standard invoice: Issued by a business and sent to a client, this is the most common form of invoice that small businesses create and send. The format is flexible and fits most industries and billing cycles.
  • Proforma invoice: A proforma invoice is an estimated bill for goods or services before they are supplied. Its purpose is to show a customer how much the final cost will likely be. 
  • Credit invoice: Businesses issue credit invoices (also called credit memos) when they need to correct a previous invoicing error or give a client a discount or refund. A credit invoice always includes a negative total number, for example,  –£50, to show that the customer will get £50 back.
  • Debit invoice: Businesses issue a debit invoice (or debit memo) when they need to increase the amount a client owes them. Debit invoices can be useful when you need to make a slight adjustment to an existing bill. 

Businesses can send invoices in paper form to the customer’s address, but it’s more efficient to send them electronically via email or your accounting software.  Since prompt payments are crucial to maintaining a healthy cash flow (learn more about that here), getting the process right from the start is essential.

What is a receipt?

A receipt is proof of a transaction businesses give customers or clients to show that they’ve paid for a product or service. Receipts will usually include key information about the purchase, such as the products or services sold, how many items were purchased, plus the total price and any added discount or service charge. Receipts may also include details of the payment method used in the transaction. 

It’s important to note that there are no specific rules or legal standards for what to include on a receipt. This means that your receipts could be as simple as a handwritten note stating the amount that’s been paid. 

Brick-and-mortar businesses (businesses with physical stores, like shops, bakeries, restaurants, or beauty salons) usually print receipts on the spot. On the other hand, eCommerce businesses typically send electronic receipts via email.

What is the difference between an invoice and a receipt?

As demonstrated, there are quite a few differences between invoices and receipts. The most important difference is that you send invoices before payment has been made, and receipts are sent after the customer pays. In simple terms, an invoice is a request for payment, and a receipt is proof of payment. 

Another difference between invoices and receipts is that you’re legally required to include specific bits of information on an invoice (more on this below), which you’re not for receipts. So while invoices and receipts play key roles in the payment process, they have very different uses, and it’s important not to mix them up. 

So, what’s the best way to deal with invoices and receipts in a small business? 

How do I issue invoices to clients?

The easiest and fastest way is to send your invoices in an email, attached as an un-editable PDF (to prevent fraud). Make sure you include a brief description of your business and invoice in the subject line and email text.

It’s good to remember that different customers or clients might have varying procedures for processing invoices. Make sure you check what method they prefer and decide on a method that works best for both of you. 

You also need to ensure your invoices meet UK Government guidelines by including:

  • Your business details: Your personal or business name and your company’s contact information, including address, phone number, email address and website.
  • Your client’s business details: You’ll need to provide the same details for your clients as for yourself, such as name, contact information, and so on.
  • A unique payment reference: Assign a unique number to each invoice so you can keep track of them. 
  • Work-related dates: Include the date of the invoice, when the client needs the products or service, and your payment deadline.
  • An itemised breakdown: List all the individual products or services you’re charging your customer for.
  • VAT: List the amount of VAT included in the service fee, if applicable.
  • Payment information: How the customer can pay you, such as bank details to pay to or a payment portal to use.

How do I manage my business receipts?

The best way to manage your recipes is to leverage modern accounting software. These systems allow you to hasten their financial admin, keep your records organised, and help you manage accounting challenges much easier. 

For example, the Countingup app allows you to take photos of your receipts using your phone. The system scans the photo and automatically saves the receipt in the appropriate category. The system also records your transactions and scans the data to work out your taxes and net profits in one go.

Manage your invoices and receipts easily with a simple app

The Countingup app makes it easy to create and send invoices, as well as to record and categorise receipts. It’s the business current account and accounting software in one app that automates time-consuming bookkeeping admin for self-employed people across the UK.

With automatic expense categorisation, receipt capture tools and cash flow insights, you can confidently keep on top of your business finances and save yourself hours of accounting admin, so you can focus on doing what you do best. Find out more here.