Invoices and bills are basically the same things, right? Not really. Although they’re both commercial documents, they have distinct differences between them and are used at different times during a business transaction. As a business owner, you may have heard the term “bill” when someone refers to an invoice or vice versa. And at some point, you’ve likely had to send both of these items to your customers. We’ve already discussed the differences between an invoice and a receipt in our article, Invoice vs Receipt. Today we’ll dive into the differences between invoices and bills. What Is an Invoice? Simply put, an invoice is a request for payment. A business will issue this to its customers after providing products or services so they can collect payment for what was supplied. It includes information such as: An itemized list of products and services Total amount due Payment terms (Net 15, 30, 60, etc.) Invoice date Invoice number Company contact details Customer contact information Payment due date Including these sections lays out clear details on what’s expected of the customer and when so there’s no confusion about what the invoice is for or when the payment is due. And if a problem arises, the customer can get in contact with the business for questions. Invoices are common use for businesses such as contractors, freelancers, and vendors. A sales invoice also comes in different forms. You might see a paper invoice, email, or PDF. The most effective way to send a professional invoice is by using accounting software. With Lendio’s free mobile app, you can send invoices digitally so you always have a record of what you’ve sent. Sending invoices and keeping good records of them is important for three reasons: It helps the business keep track of inventory. Inventory accountants match up purchase orders with invoices to verify inventory and income in the accounting process. It’s a legal document. Invoices prove that your business provided products or services. If you aren’t receiving payment from a client, the invoice and other subsequent documents can be used to enforce payment through the legal system. Outstanding invoices are apparent. Invoicing multiple customers gets confusing without accurate records. Using invoicing software can alert you to unpaid invoices. It takes the guesswork out of getting paid and improves cash flow. What Is a Bill? A bill is a request for payment too, but it’s a bit different. Think of how you might ask for the bill when visiting a restaurant. You’re obviously not going to tell your waiter that you’ll pay for your food in 30 days. That’ll get you some strange looks and a visit from the manager. Instead, you pay for the meal right then and there. Billing covers a one-time transaction and requires immediate payment. It acts as proof that goods and services were provided the same way invoices do. Instead of accepting payment on a future date, it’s expected right away. Billing is a common practice with several types of establishments. Places like retail stores, restaurants, nail and hair salons, or hotels. When you see the bill, it’ll have a few key categories that are common for this type of document. Total amount plus sales tax Date of purchase A list of what was purchased Number of items purchased Before handing over a payment method, the buyer reviews the charges listed on the bill for accuracy. If any errors appear, there’s a chance to discuss that with the vendor and have them corrected before making a payment. Once the payment goes through, the service provider issues a receipt to the buyer proving that they completed their purchase. If the buyer decides to contact customer service to return the merchandise, a credit memo is created to process the return and account for inventory. The Differences Between an Invoice and a Bill Invoices and bills might still seem pretty similar at this point. They’re both issued after a service or product is provided. They both include similar information. And they’re both proof that goods and services were rendered, but not yet paid for. A receipt confirms payment for both. They have a lot of similarities, but there are several differences too. To truly understand whether a document is an invoice or a bill, you have to ask yourself a few questions. One Time or Every Time? One of the main differences between an invoice and a bill is the circumstances they’re issued under. Invoicing happens when there’s a recurring need for goods being supplied by the business. They’re made for long-term interactions. For this reason, many businesses have recurring invoices. They’re sent on a billing cycle where the customer might have the option to set up recurring payments. This makes the invoicing process easier for everyone. The frequency of invoices is agreed on ahead of time by both parties. While invoices can be issued for one-time transactions, it’s not typical. Bills, on the other hand, are issued for one-and-done transactions. Each time you visit a dentist's office, hotel, or restaurant, you get a bill at the end of your visit. These are short-term transactions that usually aren’t recurring. Since payment is due immediately, your transaction ends once you have a receipt in hand. When Is Payment Due? Businesses that send invoices have set an agreed-upon date that payments are due with each customer. Invoice payment terms consist of net 30, 60, or 90 days, so a business is essentially extending credit to the person or company making a transaction with them. Bills don’t have the option to pay later. Instead, you have to submit payment in the form of cash, credit card, or debit when the bill is given to you. When the payment goes through, a receipt is printed and handed to you as confirmation of the purchase. It’s helpful to have invoices in a situation when you’re running a business that makes large supply orders every month based on projected sales. The funds for the supply order might be based on the income from the sales you’ve made. So a net 30 arrangement with a vendor would help you continue to meet customer demand while regularly getting the supplies you need to stay in business. Some projects may require a 50% deposit for services rendered before starting work. In these cases, term invoices also account for advance payments made by the customer. What Kind Of Information Is Included? A crucial point in the invoice vs bill comparison is the level of information included in the document. Since invoices are used for purposes like taxes, legal proceedings, and financing, they have to contain very specific information to meet legal document standards. Standards like a unique invoice number, the word “invoice”, and/or contact details for the business and the buyer. This is all in addition to the information we mentioned earlier. The same information isn’t required to be on a bill. Traditionally, bills contain limited information about the transaction. There’s no need to include customer details, payment terms, or a due date since it’s being paid now. Who’s Sending It? The biggest difference between an invoice and a bill is who’s sending it. If you’re on the receiving end of an invoice, then it would be a bill to you because it’s a request for payment that you have to fulfill. However, if you’re the one sending it to a customer, it would be an invoice. This is one of the few situations where the two terms could be used interchangeably. As a customer, you get a bill and you’re expecting a receipt after paying. If you’re the business issuing the request for payment, then you’re the one sending the receipt after getting paid. Overall, invoice and bill are two distinctly different terms. Invoices are used by businesses and bills are usually received by customers. While they might be used interchangeably, it’s important to know the difference and when to use both.