What is the difference between a bill and an invoice?

In the world of business, the terms “bill” and “invoice” are often confused. Many people make the mistake of using the terms interchangeably, but their functions are very different. Understanding the differences between bills and invoices is important, especially for freelancers and small business owners who need to manage their finances effectively. Let’s dive into the differences between bills and invoices, and how each plays an important role in business. 

Invoice definition

An invoice is a document created by a business after the exchange of goods and services with a customer. It serves as a formal request for payment from a business to a customer, and also acts as a record of the goods and services exchanged. A business usually sends an invoice once a job has been completed. While invoices can be used across all business types, they are particularly common in industries involving service contracts, such as construction, design, education, and services charging hourly rates.

Need to send an invoice? Check out Bookipi’s invoicing software and invoice template to simplify your invoicing process.

Table of Contents

Need to send an invoice? Check out Bookipi’s invoicing software and invoice template to simplify your invoicing process.

Bill definition

A bill, often referred to as a billing statement, represents the amount of money owed by a customer to a business. A bill outlines the total amount owed for goods or services rendered. Bills typically come with an expectation of immediate payment, making them standard in retail businesses and restaurants where prompt settlement is common practice.

Streamline your bill management and ensure timely payments with Bookipay’s user-friendly platform. Try Bookipay today, download on Google Play Store or the Apple App Store!

Invoices vs. bills: What are the differences?

Understanding the differences between bills and invoices is essential for effective financial management. Here are some of the differences between the two: 

Who payment is coming from

Invoices are typically paid by a client, representing a request for payment from a service provider to a customer. Bills, on the other hand, are paid by a customer, representing a request for payment from a seller to a buyer.

Example: A freelance designer issues an invoice to a client for logo design services, while a restaurant issues a bill to a customer after they have finished their meal.

When it has to be paid

Invoices include a due date for payment, allowing clients a specific timeframe to settle their accounts.Bills are often paid immediately upon receipt, with an expectation of prompt settlement.

Example: An invoice may specify payment terms such as “pay within 30 days,” while bills are typically settled immediately.

How often payment has to be made

Invoices can be recurring, set up for ongoing payments such as monthly service fees or subscription renewals. Bills are typically used for one-time transactions and do not recur.

Example: An invoice for monthly graphic design services may recur, while a bill for a restaurant meal is a one-time transaction.

Let’s explore the differences between invoices and bills in this example: 

Amber operates a pastry catering business. After Amber completes each order, she sends invoices to her customers to request payment. These invoices detail the types and quantities of pastries fulfilled in the order, her business contact details, billing information, the total amount owed, and the payment due date. The invoices serve as a formal request for payment, and Amber allows her customers 15 days to pay each invoice. 

As the owner of a small business, Amber also has overheads and needs to pay bills. Amber reserves a portion of her profits each month to cover kitchen rental, gas and electricity bills, as well as ingredients. Like invoicing, bills management is an essential part of running a business.

When to use a bill vs. invoice

Understanding when to use a bill versus an invoice is important for effective business management. Here are some common scenarios where each type is typically used:

When to use bills

Point of sale transactions

In retail and hospitality industries, bills are often issued to customers at the point of sale to request payment for goods or services rendered. For example, patrons dining at a restaurant receive a bill (often referred to as a check) outlining the cost of their meal, including food, beverages, and any additional charges like taxes and gratuity.

Monthly utility bills

These are perhaps the most common types of bills encountered by both individuals and businesses. Utility bills include expenses such as electricity, water, gas, and internet services. They are typically issued on a monthly basis and outline the usage of these essential services during a specific billing period. Utility bills are crucial for maintaining basic amenities and keeping homes and businesses operational.

Rent payments

For individuals renting residential properties or businesses leasing commercial spaces, rent payments are a regular expense. Landlords or property managers issue bills outlining the amount due, due date, and any late fees or penalties for overdue payments. Rent bills are essential for tenants to ensure timely payments and maintain a good relationship with their landlords.

When to use invoices

Freelance work or consulting services

Freelancers and independent contractors rely on invoices to bill clients for their time, expertise, and services rendered. Whether it’s graphic design, web development, writing, or consulting, invoices provide a detailed breakdown of the work performed, hourly rates or project fees, and payment terms. Invoices also serve as a record of the agreed-upon terms between the freelancer and client, helping to avoid misunderstandings or disputes. There are plenty of free invoice templates that make creating an invoice easier.  

Professional services

Lawyers, accountants, consultants, and other professionals who provide specialized services to clients rely on invoices to bill for their expertise. Invoices for professional services often include detailed descriptions of the services provided, hourly rates or flat fees, and any additional expenses incurred. These invoices help professionals track billable hours, manage client accounts, and maintain accurate financial records.

One-time purchases or custom orders

In addition to recurring services, invoices are also used for one-time purchases or custom orders. This includes transactions such as buying equipment or supplies for a business, hiring a contractor for a home renovation project, or commissioning a piece of artwork. In these cases, invoices provide a clear record of the transaction terms, payment due date, and any special instructions or requirements agreed upon by the buyer and seller.

Other transaction documents you might encounter

Besides invoices and bills, businesses encounter various transaction documents serving different purposes. Let’s delve into some of these documents:

1. Sales receipts

Sales receipts are issued by sellers to buyers as proof of purchase, and detail the date of sale, item descriptions, quantities, prices, and the total amount paid. They are vital for accurate transaction tracking.

Example: Imagine buying a laptop from an electronics store. The sales receipt you receive at the checkout itemizes the purchase, serving as proof for future warranty claims or returns.

2. Statements

Statements are periodic summaries of account activity, issued by service providers or financial institutions, and help customers manage their finances by outlining transactions, balances, and payment due dates.

Example: Your credit card company sends a statement at the end of each billing cycle, summarizing all card transactions. Reviewing it helps identify unauthorized charges and track spending habits.

3. Estimates

Estimates are preliminary quotes provided by sellers to potential buyers, estimates outline expected costs for goods or services. They aid in negotiations and planning.

Example: Planning a kitchen remodel involves consulting contractors who provide estimates detailing the project scope, materials, labor costs, and total price. By comparing quotes, you can work out which contractor is the best choice for your project. 

4. Purchase orders

Purchase orders are issued by buyers to formalize agreements for goods or services. They specify items, quantities, prices, delivery dates, and terms. Purchase orders streamline procurement and provide a transaction record.

Example: A retail manager submits a purchase order to a supplier for new inventory. Once received, the supplier fulfills the order and invoices the retail store for payment.

5. Delivery receipts

Delivery receipts are signed by recipients upon receiving shipments and confirm the satisfactory receipt of goods. They are crucial for tracking inventory and resolving shipment discrepancies.

Example: A logistics company delivers a package, and the recipient signs a delivery receipt, documenting details like delivery time, recipient’s signature, and item description.

Bookipi is an effective solution for bookkeeping, try it out!

Manage your finances with Bookipi and Bookipay: Simplify invoicing and billing

In today’s fast-paced digital landscape, managing finances efficiently is crucial for freelancers and small businesses alike. Thankfully, tools like
Bookipi and Bookipay are revolutionizing how individuals and businesses handle their billing and invoicing needs, offering a seamless and intuitive experience so that you can stay organized, efficient, and in control of your finances.

Bookipi: Easy Invoicing

Bookipi’s invoicing software simplifies billing for freelancers and small businesses. With customizable templates and advanced features like recurring invoices and expense tracking, users can create professional invoices quickly and track payments effortlessly.

Bookipay: Convenient Bill Management

Bookipay works hand in hand with Bookipi by offering a user-friendly platform for bill management. Its intuitive interface makes it easy to track and pay bills on time, avoiding late fees.

By incorporating Bookipi and Bookipay into your financial toolkit, you can simplify invoicing and bills management, ensuring greater control over your finances. With these tools, freelancers and small businesses can streamline processes, reduce administrative burdens, and focus on what matters most: growing their business.