What’s The Difference Between a Bill and an Invoice? Here’s The Answer!
Are bills and invoices the same? The answer is no, they are not. They both give us information about business transactions but they are used in different situations.
What is the difference between a bill and an invoice? How are they used? Do they have the same components?
Don't worry, we will answer all your questions and explain the main differences between these two terms in this article. Let's get into it now!
What Is a Bill?
The word “bill" designates an accounting document that outlines the amount a customer has to pay for a product or service that is purchased. It is also considered as a payment reminder. A bill is issued before the payment is sent, and it is used one-time and immediately.
For example, we usually see a bill in restaurants, retail or commercial settings, hair salons, medical fields, etc.
The main components of a bill are:
- The name of the supplier
- The quantity of products purchased
- The amount with (or without) tax that clients have to pay
- The VAT percentage if applicable
The Definition of an Invoice
An invoice is a commercial statement issued by businesses to request payments from clients. It shows customers how much they owe and the “payment deadline". It helps businesses to accelerate the payment collecting process and ensure that it will be realized on time.
An invoice is sent before the payment is received by the supplier and it can take time to generate one. To be valid, an invoice should include important information including:
- information about your company
- unique invoice number
- information about the customer
- payment deadlines
- billing address (if it is different from the corporate address)
- purchase details such as quantity and unit price before tax
- total price before and after tax
- VAT number if applicable
- penalties if the payment is late
✌️ If you want to discover the complete definition, the uses, and different types of invoices, check out our article on what's an invoice!
Invoice vs. Bill: The key differences
Purpose of Invoices and Bills
Invoices aren’t only used for the purpose of requesting payment. Companies can use them for financial reporting to know how much clients owe them. It is useful when we want to accelerate the invoicing process and reduce stress from collecting client payments.
On the other hand, a bill is considered as proof of transaction and a reminder for clients about the amount that they haven’t paid yet.
💡 Did you know? When a supplier sends an invoice to the client, the client puts it into their books as a bill. Once the payment has been made, both the client and supplier will receive a receipt for the transaction.
Invoice and Bill components
The information in a bill usually contains only limited details of the sale, such as the quantity of units and the amount of money to be paid before (or after) tax.
However, on an invoice, beyond the details of the product or service provided, we see lots of mandatory information such as the customer contact details (name, address, corporate name, VAT identification number, etc.) and also the information of the seller or vendor (corporate name, address, ID number, tax details, etc.).
An invoice should have a unique invoice number to be valid while this is not common or mandatory for a bill. Even if there is an identifier on the bill, it is used for administrative reasons and doesn’t necessarily have a legal value.
Invoice & Bill: Different uses
When do we use an invoice and a bill? Keep reading 😉
A bill is used:
- As a record or proof for the buyer of goods regarding their purchases.
- As a payment reminder for clients
- A bill is due upon receipt of goods or services
An invoice is used for:
- Tax records: know how much a person spends based on their revenue
- Legal purposes: a legal proof when there is a transaction mistake for example
- Customer behavior information: In contrast to the bill, invoices can have a mass of interesting information about the customer's purchasing behavior such as their favorite product, how much they spend, etc.
A summary of the main differences between a Bill and an Invoice
This summary table will help you synthesize the key differences between a bill and an invoice:
|Delivered when||Before the payment is sent by the customer||After the delivery of the products or service and before the payment is received by the supplier|
|Principal elements||Focuses more on the purchase details
||Focuses on company and client information
|Type of transaction||Cash transactions
|Credit transactions with a payment deadline|
|Purpose||Used as a payment reminder or proof||Used as a payment request|
In conclusion, it is not hard to find out the distinctions between invoices and bills. It is important for businesses to find out those differences to avoid mistakes in their business transaction, accelerate the payments, and reduce stress from collecting payments from their clients. Nowadays, with the wide range of SaaS products, invoicing and billing are easier than ever!