Statements and invoices are both commonly used by large and small businesses. You probably encounter invoices and statements in your day-to-day operations as an issuer or a recipient.
Although there are similarities between the two documents, their functions and intent are not similar.
In this article, we'll detail what these two documents are and what's included in each. We'll also discuss the key differences that set them apart.
What Is an Invoice?
An invoice is a legal document that a seller sends to a buyer to request payment for a specific transaction. Its purpose is to create an obligation on the part of the buyer to pay. Invoices are either recurring — generated on a contractual or regular basis — or created for a one-off sale.
Here are details commonly found on a sales invoice:
- Business name, business logo, contact information (phone number, address, website)
- Customer's name and contact information
- Invoice number
- Date the invoice was created
- Payment due date and payment terms (if applicable)
- All acceptable payment methods (cash, check, credit card, debit, etc.)
- Itemized list of goods and services delivered — includes price, quantity, and a brief description
- Total amount due plus sales taxes and/or fees
As a business owner who sells products or provides services, invoices are an integral part of your bookkeeping. This is true whether you're the one issuing the invoice or you're the recipient. When you receive an invoice, you have an amount owing and an expense for your business.
When you send an invoice, it's a record of accounts receivable for your business. "Accounts receivable" is an accounting term that refers to the sales you've made but haven't received payment for yet. Late payments and unpaid invoices can impact your company's overall financial health and cash flow negatively. This is why you need an effective invoicing process to track which invoices are paid or still unpaid.
Is an Invoice a Financial Statement?
No, an invoice is not the same as a statement. You send out an invoice after you fulfill the terms of a transaction between you and your customer or client. It is a legal document that creates an obligation for the recipient to pay. On the other hand, a statement is a report of all transactions — paid or unpaid — between you and your customers or clients during a specific period, which is usually monthly.
When Is It Ideal to Use an Invoice?
There are several forms and documents that businesses use for ordering and invoicing. In this section, we'll compare an invoice with other types of forms.
- Invoices vs. purchase orders: Customers use purchase orders to start a sales transaction. The form lists and describes the products or services they want you to deliver, including specifications, quantities, and the expected delivery date. When you approve a purchase order, you create a binding transaction between you and the customer. However, you can't use a purchase order to enforce payment after completing the terms of the transaction. So, you still need to send an invoice.
- Invoices vs. sales orders: You send a sales order after you receive a purchase order. In the form, you'll confirm the availability of items and the possibility of fulfilling the order. Both forms are accounting documents that can be used to track sales but an invoice is the only form that creates an obligation for your customer to pay. It also details the work you've done, the amount due, and when and how you expect to be paid.
- Invoices vs. bills: These two forms have the same objective: getting the recipient to pay. However, bills are generic and they're issued with the expectation of being paid immediately (e.g., a restaurant bill). In contrast, an invoice is more personalized. It contains details about you and your customer. Invoices are also widely used by businesses that sell products or provide services on credit.
What Is a Statement in Business?
A statement is a summary of a customer's or client's account standing at a given point in time. It's issued at set intervals, which is usually monthly. Statements are generally sent out to provide information to clarify or highlight upcoming payments.
Some details you may see on a statement include the previous balance, invoice payments or amounts paid during the billing period, and transactions during the statement period — including the date, invoice number, and invoice total. Businesses that offer credit terms may also add details like the length of time each unpaid invoice has been outstanding, payment terms, and acceptable payment methods.
When creating statements for your customers or clients, you may choose to include unpaid amounts only or show all transactions in a given period. Some customers prefer to see all transactions during the statement period because it allows them to match your records with their sales receipts.
Is a Statement a Bill?
No, a statement is not a bill. A statement aims to provide information on a customer's or client's account, while a bill's purpose is to demand payment. Bills are generic invoices; they're issued with the expectation of being paid immediately. However, an exception can be made for credit card statements. They provide transaction details for the account holder, but they can also be considered a billing statement because the credit card company doesn't send out a separate invoice.
When Are Statements Used?
You started a business to earn income, but late payments and unpaid invoices can negatively impact your goal. Your business cash flow is also dependent on you getting paid on time. To effectively manage your accounts receivables, you need to use both invoices and statements.
A statement is meant to remind and compel your customer or client to pay any amount they owe. This is why it's best to include the balance due from previous transactions and the most recent purchases. A statement also ensures that the recipient receives reiteration of activities on their account — an effective strategy when they miss or lose the invoice. Sending out regular invoices also saves you time from answering inquiries from customers asking about their accounts.
When you send out statements, it also helps you track overdue client accounts. By identifying delinquent accounts, you will be able to estimate the percentage of debt that may become unrecoverable. You record unpaid invoices as "bad debts expense" on your income statement.
Invoices vs. Statements
An invoice is a legal document that advises customers of their obligation to pay for individual sales transactions. In contrast, a statement is an overview of a customer's account. One of the main differences between these two documents is the intent. The purpose of an invoice is to demand payment. On the other hand, businesses send out statements to induce clients to make a payment.
In addition, an invoice contains detailed information related to a particular transaction. For example, it lists the products or services delivered, the total amount due, payment terms and due date, and acceptable modes of payment. A statement shows the total balance outstanding, recent invoices, customer payments, and other financial transactions.
Easily Create Effective Invoices With Skynova
Your company's finances and cash flow rely on you getting paid on time. You need an effective invoicing process for your business to ensure that you're sending out invoices timely and accurately. When you forget to bill your clients, they might also forget to pay you.
With Skynova's invoice template, you get a downloadable and customizable template you can use to quickly and easily prepare invoices. This professional-looking template can help you save time. You're welcome to check out our industry-tailored templates and accounting software for small businesses.
Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always consult with a professional accountant to ensure that you're meeting accounting standards.