While the terms “bills” and “invoices” are often used interchangeably, there are actually significant differences between the two. In general, a business issues an invoice to clients or customers to request payment for goods or services rendered. The recipient treats that invoice as a bill, sending it to accounts payable for processing. A business can issue both bills and invoices, issuing the former for one-time purchases and the latter for recurring ones.

So, what are the key differences between bills vs. invoices? Here’s a breakdown of these two everyday financial terms that may have surprising meanings once you look at them more closely.

What is a bill?

A bill outlines charges a customer or client owes for goods or services. Every bill serves as legal evidence of a transaction between a buyer and seller, and they’re often used for one-time payments, such as for retail purchases. Unlike invoices, which can be paid within an agreed-upon timeframe, a bill is typically a request for immediate payment.

You encounter bills in your everyday life at restaurants, retail stores, salons, and more. Bills often don’t include detailed client information; rather, they should outline components like:

  • An itemized list of goods and services rendered
  • The total number of units purchased
  • The total amount due, including tax

What is an invoice?

An invoice is a document a business issues to a client or customer to request payment for products or services provided. A business typically sends an invoice to customers after delivering a product or service, but invoices can also be issued after some project milestones or agreed-upon time periods.

Invoices should outline how much a client owes and set out appropriate payment terms, ensuring the vendor receives payment on time and in a convenient manner. Every invoice should include:

  • Dates: An invoice needs dates, including the date the invoice was prepared and the date when payment is due. Specify exactly how much time the buyer has to pay for the goods or services rendered.
  • Invoice number: Invoices should be sequentially numbered, especially for clients that receive recurring invoices. This helps both parties avoid duplication and payment disputes.
  • Business contact information: Businesses should include their name, address, phone number, and email address, as well as the client’s corresponding information.
  • Description of goods and services: An invoice should contain an itemized list of every product or service rendered, as well as the price and quantity for each item. Remember to add applicable taxes to the overall total.

Bills vs. invoices: What are the differences?

Sometimes, the two terms are simply different ways to describe the same thing, while at other times, the documents reflect different legal statuses. Here are some of the primary differences between a bill and an invoice:

  1. Payment terms: Bills are often furnished with the expectation that the buyer will pay off the amount right away. Invoices, on the other hand, contain documentation about how much money a client or customer owes. The client receives the invoice, records it as a bill that must be paid, then processes payment.
  2. Different statuses: One of the primary differences between bills vs. invoices is their status. Bills contain limited information and details about items furnished, prices, and taxation. Invoices are official business documents, so they’re much more detailed. To stay compliant, they need to include the specific details outlined above. There’s a formality that comes with invoices that doesn’t apply to a simple bill.
  3. Different uses: How can bills be less formal than invoice and still be useful? Bills are often used for transactions that are completed right away—the buyer pays either when they place an order, such as at a checkout counter, or after receiving the goods or services ordered, such as at a sit-down restaurant. While invoices can be used for immediate transactions, they’re more typically used for ones that aren’t settled immediately. Invoices are nearly always used in B2B transactions—even if goods or services are paid for immediately—since they simplify the accounting process.
  4. Order numbers: Bills may not necessarily include unique order or transaction numbers, but all invoices do. Companies rely on invoice numbers for inventory tracking and financial record keeping, so accurate numbering is important.

Other common transaction receipts

Aside from bills and invoices, some other common transaction receipts you may come across include:

  • Sales receipts: Companies often provide sales receipts as proof of payment once you’ve paid a bill or invoice. This document can be tangible or digital, and it should include the business name, transaction date, list of items purchased and their cost, total cost, and method of payment. It can also include the purchaser’s name, if applicable.
  • Estimate: Customers often request an estimate when they need a business to provide services. An estimate should detail what the customer can expect to pay, allowing them to budget appropriately. You can shop around and receive multiple estimates to compare prices before making a decision about which vendor to work with.
  • Expense report: Expense reports are often created when employees pay for items out of pocket and need to be reimbursed later by the employer. Expense reports often include travel, fuel, and other costs associated with doing business.
  • Statement: Customers can request statements to check their account status. These can include credits, past transactions, payments, and other information. Some businesses send periodic statements to customers who follow a payment schedule, so they’re aware of outstanding balances on their purchases.

While these types of transaction receipts are distinct from bills and invoices, it’s not uncommon for businesses and customers to use them in conjunction with bills and invoices. For this reason, it’s all the more important to understand how these documents differ from one another.

Digital banking solutions simplify invoicing and bill paying

Understanding the differences between bills vs. invoices is a foundational skill for business owners, and so is prioritizing on-time payment. Today’s digital payment solutions make it easy, fast, and secure for businesses to pay invoices on time and avoid late penalties—not to mention prevent damage to your reputation with vendors.

North One offers seamless digital payment solutions for small businesses. Now, it’s easier than ever to send payments and move money in a few simple steps.