Invoices and bills help businesses get paid; yet, they sometimes serve different purposes. While the terms are often used interchangeably, they do have differences. To understand why they are different, it’s critical to learn the purpose of each and when they should be used.
The term "invoice" is used to record the business transaction, explain individual expenses, and set payment terms. Invoices are usually used when a service or product has been given to the customer. It acts as a short-term credit from the company and comes with payment terms. Conversely, a bill calls for immediate payment. Since bills call for immediate payment, there is very rarely an option for changing the payment period.
Both invoices and bills play critical roles in bookkeeping. In this article, you will learn the key differences between an invoice and a bill and how to create and issue both.
What Is an Invoice?
Invoices are sent from the provider of a good or service to the customer. An invoice serves as an itemized list of the transaction. This means that it details individual costs of the transaction and the total amount due, creates a record of the business transaction, establishes official documentation for the customer to pay, and helps businesses maintain accurate bookkeeping for tax purposes. Invoices are commercial documents that are important for domestic and international businesses. Once the invoice is received, a business can record accounts payable, which is the balance they have before paying off the debt.
Although there are different types of invoices, every invoice should include some basic information. All invoices should contain contact information, addresses, and the date of issue and its due date. If you’re a small business owner, you want to ensure that your invoices include this essential information. Thankfully, Skynova offers a free invoice template, which can simplify the invoicing process for all business types.
What Is a Bill?
Unlike invoices, bills are generally a more immediate request for a particular amount of money. Once the service is complete or the good is sold, the provider will send the bill immediately. The point of sale prompts the customer to pay the bill.
Most people are familiar with bills, as they are common occurrences in our everyday life. For example, when you order a cup of coffee in the morning, you will receive a bill before you leave the store. You’re also probably familiar with other types of bills, such as when paying for your electricity, phone, or water usage.
How Are Invoicing and Billing Different?
Although invoices and bills prompt the customer to pay the provider, they have several key differences. To begin with, invoices tend to include much more information than a bill. All invoices should be detailed and contain an itemized list of goods or services. A bill usually does not include an itemized list. Instead, it will just request a payment.
Additionally, bills typically request upfront, immediate payment, whereas invoices usually allow customers to make a payment at a later date, usually seven, 15, or 30 days later. The payment period for an invoice should be included with the terms of payment, which should also specify the payment period, forms of accepted payment (debit, credit card, cash, etc.), and the total amount that the issuer is owed by the buyer.
Another distinguishing aspect between bills and invoices is how they are perceived. For example, the seller or business would refer to what they issue the customer as an invoice, while the customer might refer to it as a bill.
How to Create an Invoice
As mentioned, invoicing requires a good deal of information. To make sure that you do not miss any important information when issuing an invoice to a customer, you should use Skynova’s invoicing template. If you are supplying a product, you will likely need to have a purchase order before making an invoice. Whether you’re a freelancer or small business owner, Skynova has the right templates to help you run the financial side of your business.
Whatever your profession, Skynova’s free invoice form can simplify the process of issuing a sales invoice. Here are some basic instructions for issuing an invoice:
- Include contact information: Add your business’s name, the name of your customer, and both of your addresses to the invoice. We also recommend adding phone numbers and email addresses for additional contact information. It is vital to double-check that the information is correct so that your customer can recognize who is sending the invoice.
- Add an invoice number: It’s important that you attach a unique invoice number. This is because invoice numbers act as an easy reference in the future. After completing your first invoice, Skynova’s template will automatically increment the next invoice number, ensuring it’s unique.
- Set the invoice date and due date: You should also add the date that you created the invoice (invoice date) and the date that payment is due (due date). Payment due dates can vary but are typically within 30 days of the invoice date.
- Add line items: Make sure to add line items that accurately explain each cost in your invoice. By using Skynova’s invoice template, you can add a description so that your customer fully understands the costs.
- Apply discounts: If you have any discounts for your customer, you can add the discount by clicking the "New Line" button and selecting "Discount" from the "Item" drop-down menu. From there, you can add the discount in the "Unit Price" column and explain the discount in the description section. The unit price will automatically show as a negative and be subtracted from the subtotal.
- Provide additional notes: It’s important that your customers know their payment terms. Even if you explained the payment terms previously, the "Notes" section provides a great space for you to explain the terms of payment and any charges, discounts, or goods and services tax (GST). For example, you might explain that the additional cost of the GST is for tax purposes on that good or service.
The final amount due for the invoice is the accounts receivable that an individual owes your company. Accounts receivable are a line of credit that the company extends to the client.
How to Create a Bill
A bill of sale is used to record the sale or transfer of property from one individual to another. It’s important that you accurately detail a bill of sale, as it acts as legal evidence for the transaction. When creating a bill of sale, you will need to add your and your customer’s contact information. Like an invoice, the bill of sale should include addresses, email addresses, and phone numbers. Then, add the date of the transaction. You will also need to add a bill of sale number, which should be unique. Next, add line items, any descriptions, and unit prices, and quantities.
The bill of materials is a list of the materials, components, and instructions necessary to build or repair a product or service. Usually, the bill of materials starts with the highest level of the finished product at the top and any components and materials toward the bottom. In short, the bill of materials contains the information needed to create a product.
Like a bill of sale, you will need to provide accurate contact information for both you and the customer. Next, you will need to include the product name and any information surrounding the product. Once you have filled in this information, you will need to add the bill of materials number, which should be unique, and the date that the bill was created. From there, you will need to add the part number, its name, quantity, unit price, and the cost of the part.
Track and Manage Invoices With Skynova’s Invoicing Software
Invoices and bills play critical roles in running a business. Although they both help you get paid faster, they are somewhat different. Invoices are great for businesses that need to explain the full costs of their services or products and have payment periods. On the other hand, bills are great for businesses or individuals who want to be paid quickly.
Whether you are creating an invoice, bill of sale, or bill of service, Skynova has the right software to help you. Learn more about our accounting software and how it perfectly integrates with any invoices you create so that you can track sales tax, expenses, and view financial reports.