What is the difference between a bill and an invoice?

Understanding the difference between a bill and an invoice can be confusing. We discuss the components of each payment method and how they differ.

13 December 2021

What's the difference between a bill and an invoice?

There are lots of different payment methods for businesses, so it can be difficult to determine which one is best for you. In this article, we discuss the difference between a bill and an invoice - and when it’s appropriate to use one or the other.

Should I send a bill or invoice?

A bill and an invoice serve similar purposes. They both provide information about the money that your customer owes you in relation to the sale of your products or services to them.

A business owner would normally use an invoice when looking to collect money from a client. You can generate an invoice before or after your client has received your goods or services.

A bill is more of a generic term. You’d give your customer a bill if they were paying for your goods or services, at the point of sale/ use.

Below is a table that highlights the differences between a bill and an invoice.

BillsInvoices
Paid by the customerPaid by the customer or client
Payment taken at point of salePayment requested by the seller
Goods or services received when payment is madeGoods or services requested in advance
Used as proof of purchaseRecorded for taxation and accounting
The receipt includes the price, taxes, date and name of the storeActs as a legal document. Details include: unique invoice number, date of issue and due date, seller’s name and buyer’s contact details, price of goods, information of services provided or goods issued, and total amount due
Billing taken at point of sale and typically carried out in: restaurants, bars, department stores, hair salons, spasA legal document that supports businesses in: tracking business revenue for taxation purposes; tracking sales and inventory; forecasting future sales, and ensuring customer and client payments are scheduled on time

When to use a bill

As we’ve already outlined, an invoice and bill are similar. But when would you use a bill instead of an invoice?

A bill outlines how much a customer is to pay for goods or services used, unlike an invoice, which can be recurring. A bill has a one-time use. You’d use a bill if you’re charging for goods and services that your customers receive instantaneously. You would be more likely to produce a bill when offering services or products at bars, spas, restaurants or salons.

When to use an invoice

So, what is an invoice and when is it best to use one?

Invoices are a necessary part of your business. They are mainly used to ensure you get paid and as a tax document that acts as proof of income. If you’re selling products and services to clients, you must provide an invoice. If you and the customer are registered for VAT, you’re legally obliged to produce an invoice.

You can use invoices for one-off projects or recurring work. Using an invoice template is an effective time-saving idea that means you won’t need to repopulate the same information over and over again if you’re involved in generating recurring invoices.

Invoicing terms explained:

How to write an invoice

What is the difference between a receipt and invoice?

What is an open invoice?

The legal difference between an invoice and a bill

There are strict rules around invoices in the UK. This is because they’re legally binding documents and require the inclusion of certain information to be valid. If you and your client are not VAT registered you’ll not need to include a VAT number. But, if both you and the client you are selling to are VAT registered, you’re legally obliged to produce an invoice.

In summary, a bill is a more informal document that usually details services or goods used and paid for at the time of use.

How to use iwocaPay to collect invoice payments

If invoicing makes your head spin, then you’re not alone. Research shows that 69% of business owners admit to being kept up at night over cash flow issues. One reason for this might be due to the payment terms that they offer.

iwocaPay can help when it comes to collecting payments. Our flexible options allow your business customers to either pay upfront or across three monthly instalments (subject to approval). Whichever they choose, you’ll be paid upfront in full.

We’re also integrated with Xero, allowing payments and reconciliation to work together. It’s easy too, and our two-click solution means there is no need for card numbers or sort codes. Once you’ve registered with us, just add an iwocaPay link to your invoices and your iwocaPay and Xero dashboards will update in sync.

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Charlotte is a Senior PR & Communications specialist at iwoca. She's been sharing news and insights about the finance industry for over three years.

Article updated on: 29 March 2022

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