Businesses engage with customers, clients, and even patients in order to gain profit. In a normal business setting, customers usually enter into an agreement with a business agent or clerk. This agreement is called a sales agreement in which the business is expected to deliver goods or provide services to a customer in exchange for a certain sum of money as payment.

In each phase of a business transaction between a business and a customer, there is a corresponding document that are customarily utilized. If you are a business owner or a manager, then you need to familiarize yourself with the different usage of purchase orders, invoices, and receipts. This article can provide you with helpful insights as to the purpose, format, and content of each of these documents.

Differences between a Purchase Order, an Invoice, and a Receipt

The main difference between a purchase order, an invoice, and a receipt is the time when each of these are to be issued as well as its functions.

The basic phases of a sales agreement or a business transaction are the following:

  • Ordering or proposal

In normal cases, it is the customer who approaches a business to make his/her order for a particular service or product known. In this phase, a business would ask their customers to fill out a purchase order form. This form contains the specific items that a customer wishes to avail or purchase from a business.

  • Negotiation

After the formal order or proposal, the buyer and seller would negotiate the terms of the transaction or agreement. Terms such as the price to be paid, the manner of payment, the method of delivery, etc.

  • Sealing the deal

When both acquiesce to the terms of a sale, the agreement is sealed.

  • Payment

Afterward, the business can then realize their end of the agreement, which is to provide the service or product agreed upon. After which they may demand payment from a customer through the service of an invoice.

  • Proof of payment

When a customer has paid the amount for the transaction, it is then the obligation of the business agent or clerk to provide a customer a proof of their payment, which is the receipt.

To gain more understanding about invoices, you can check out our construction invoice templates and photography invoice templates.

Similarities between an Invoice and a Receipt

Invoices and receipts are commonly considered as identical documents when in fact these two are different documents.

There is, however, a sense of truth in the root of such a confusion. These two documents are more or less similar. The following are its similarities:

  • These are both formal documents.
  • Both are legally admissible in court.
  • Both are proofs of a business transaction.

Differences between an Invoice and a Receipt

  • A receipt is a proof of payment whereas an invoice is a demand for payment.
  • A receipt is given after the payment while an invoice is given before a payment.
  • Some businesses may not be required by law to provide an invoice as the demand for payment can be made verbally. However, the issuance of a receipt is a necessary part of most business transactions.

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