What is an invoice? Definition, example and how it differs from a bill

You send them, you receive them, and yet the question keeps coming up: what is an invoice, exactly? It is more than a request for money. An invoice is the document that records a sale, sets out what the customer owes and when, and feeds the accounts of both businesses. I will give you a clear definition of an invoice, show what one looks like, and explain how it differs from the documents people confuse it with: the bill, the receipt, the quote and the purchase order.

What is the definition of an invoice?

An invoice is a written document, issued by the seller or service provider, that records a transaction and states its price. It tells the customer who sold what, to whom, when, for how much, and when that amount has to be paid.

Three features separate an invoice from an informal note or a message asking for payment:

• it carries a unique number, so it can be found and referenced;
• it lists the goods or services line by line, with quantities and prices;
• it sets out payment terms: a due date and the accepted ways to pay.

What is an invoice used for?

I see four jobs, which explain why an invoice has to be accurate:

• A commercial job: it fixes what the customer must pay, and by when.
• A job as evidence: if there is a disagreement, the invoice shows what was sold and at what price.
• An accounting job: every invoice issued or received goes into the books of both businesses.
• A tax job: it supports the calculation of taxes such as sales tax or VAT, when they apply to you.

What does an invoice look like?

Most invoices follow the same order, from top to bottom. Here is a fictional example for a small trade business. The amounts are illustrative.

The full list of what belongs on an invoice, and why each item matters, is in our checklist on what to put on an invoice.

Invoice, bill, receipt, quote, purchase order: what is the difference?

"Invoice" and "bill" describe the same document from two sides: the seller sends an invoice, the customer receives a bill. A receipt is different: it confirms payment, so it comes after the invoice.

When should you send an invoice?

As soon as the work is finished or the goods are delivered, unless your agreement says otherwise. The longer you wait, the longer you wait to be paid, because the due date usually counts from the invoice date. For larger jobs, you can invoice a deposit at the start and the balance at the end, or bill each stage as it is completed.

Late invoices are also harder to collect: the customer has moved on, and details of the job are no longer fresh. If payment is slow in spite of a prompt invoice, see how to chase late-paying clients.

Is an invoice a legal document?

An invoice is a business record, and in many countries it is also a document required by tax rules. What it must contain, when it is mandatory, and how long you must keep it depend on your country and your tax status, and these rules change. Check with your tax authority or accountant before you rely on a template. This article is general information, not legal or tax advice.

Two principles hold almost everywhere: an invoice that has been issued should not be altered, and each invoice needs its own number. To correct a mistake, you issue a credit note against the original invoice rather than editing it.

How do you create an invoice?

You can build one in a word processor or a spreadsheet, as long as you number your invoices by hand and check the arithmetic. With invoicing software, the numbering and totals are automatic. In FacturWeb, you turn an accepted quote into an invoice in one click, the number is assigned for you, and the PDF goes out by email or WhatsApp with a payment link. If you invoice for services rather than products, see our guide to invoices for services.

Summary