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What Is the Difference Between Billing and Invoicing?

What Is the Difference Between Billing and Invoicing?

For most people, invoices and bills are similar as both the documents contain details of purchase and sales orders. However, bills and invoices are not identical; they are two separate documents used for different purposes.

For example, Bills are generated at the petrol pump, which you need to pay immediately. Whereas, as a business owner, you would need to create different types of invoices –  standard, credit, commercial, pro forma, and E-invoice – as per requirements.

Thus, let us see the key factors that distinguish a bill and invoice with uses in business.

1) What is Billing?

Simply put, the amount of money that a customer owes to a business is a bill. It gives an outline of the number of goods and services rendered and received. A bill is mostly a printed statement or a written document for the charges owed.

As a generic term, it can be applied to several different documents. It serves as a legal document between a seller and buyer that states a transaction has taken place. Billing is standard for merchandise stores, grocery stores, dining establishments, and restaurants where the customer needs to pay money for the goods purchased or service availed.

2) What is Invoicing?

Invoice typically refers to sales invoices, which is a commercial document that a business issues to its clients. It’s an outline of the sales details, which follows specific invoice templates. It gives you complete details of buying and selling. It has an account of money, said work, and contact details of seller and buyer.

The function of an invoice is to ask for payment at a precise payment term. As it’s a demand for payment, the seller issues it after the purchase transaction is over. Invoices also represent a credit, as the seller is not receiving cash immediately but at a future date. Sellers number all the invoices in sequential order.

3) Bill vs Invoice – The Main Differences

a) Purpose

A bill and invoice both are commercial documents. But, it is the purpose of use that makes them different.

  • A seller issues a bill for a one-time, upfront payment for retail services.
  • A seller issues the invoice for a single sale or recurring sales.

Most businesses send invoices to customers based on goods sold on a credit basis. They serve it as a request for payment from the customer. In simple terms, a seller would generate an invoice for the collection of fees from clients. The purpose of issuing a bill or invoice also depends on the nature of the business.

 b) Components

A bill contains little details regarding tax and pricing. It does not have any information about customers except a table number when it’s a restaurant bill. Most bills don’t contain any personalization factor; therefore, they are broad.

There are different components in an invoice compared to a bill. The invoice contains a header with the word ‘invoice’ along with seller and customer’s complete contact information. It has a printed invoice number with a description of the product or service. The invoice also states the total amount owed and cost per unit. Most companies print their business terms on the invoice.

 c) The Credit and Uses

A customer needs to pay a bill immediately. There is no extension on the credit limit of a bill. Restaurants, salons, and small retail stores issue bills, and you’ll have to pay the amount there and then.

With invoices, there is no considerable time frame. A customer needs to make a payment in a few days, depending on what is agreed upon. Most accountants and lawyers send invoices to their clients for payments.

Invoices keep a trajectory of the sales and inventory management process. It helps to record revenue tax and other business functions. Most clients prefer an invoice over a bill when they need to make payments for services.

d) Time and Proof

The transactions of bills do not take much time, and most customers pay in one go.

Invoices request payments; there may be a delay from the seller’s side or the customer’s side. There is no fixed time to clear an invoice. Some customers also ask for a credit period of two months. A customer pays the bill, whereas a client pays an invoice.

A bill is proof of a transaction between seller and customer and can also be randomly generated for the customers’ purchases. On the other hand, the invoice becomes a useful document for taxation, financial management, and accounting.

Tips to Make Your Invoices Better

  • You need to pick up a good billing or invoicing software that provides excellent features and integrates according to your business functions.
  • Use correct contact details and billing address to make sure your payment is on time.
  • Professional invoices leave a good impact on your clients; use a template that is easy to understand.
  • Use words like Thanks and Please in your invoice to keep your tone polite.

To Sum Up,

Bills and invoices are request documents for customers and clients respectively to make a payment. Customers have to pay bills on an instant basis in most cases. And invoices have a credit limit as set by the client or seller. If you need to generate a bill or an invoice for your business, then use suitable accounting software to expedite the whole process.

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