Many small business owners use the terms "invoice" and "receipt" interchangeably, but they are entirely different documents with distinct purposes in the accounting cycle.
Definitions
What is an Invoice?
An invoice is a formal request for payment issued by a seller to a buyer before or after goods/services have been delivered, but before payment has been made.
What is a Receipt?
A receipt is a proof of payment issued by the seller to the buyer after the payment has been successfully received.
Quick Comparison Table
| Feature | Invoice | Receipt |
|---|---|---|
| Purpose | To request payment for goods/services | To prove payment was made |
| Timing | Sent before payment is made | Sent after payment is received |
| Shows | Total amount due, payment terms, due date | Amount paid, payment method, date of payment, remaining balance (if any) |
| Accounting Impact | Increases Accounts Receivable | Decreases Accounts Receivable, Increases Cash |
The Standard Workflow
Here is how invoices and receipts work together in a standard business transaction:
- You finish a web design project for a client.
- You generate an Invoice for ₹50,000 and email it to the client.
- The client reviews the invoice and transfers ₹50,000 to your bank account via NEFT.
- You verify the funds are in your account.
- You send the client a Receipt (or an invoice marked as "PAID") confirming you received the ₹50,000.