Bills vs invoices: what is the difference?

In the world of business, you regularly come across bills and invoices. These two familiar terms are often used interchangeably. In fact, if you look up a definition of either one, you’ll find that they are almost entirely synonymous. Although the documents have a lot in common, there are subtle differences between them, which we explore in this article.

Before identifying the distinctions between bills and invoices, it's important to look at them individually and understand how they are best defined.

Defining bills

How would you define a bill? Essentially, a bill is a printed or written statement that outlines the amount of money a customer owes for goods or services. It’s a generic term that can apply to various types of documents. An issued bill serves as both a record and a reminder for payment.

Everyone gets bills – council tax bills, phone bills, internet bills, bills for gas and electricity. The list goes on… For companies, billing customers and receiving bills is an everyday occurrence. Without them, you wouldn’t be able to pay for things, or, more importantly, be paid – which creates essential cash flow for your business.

Defining invoices

So, what about an invoice? How is that term best defined? Well, an invoice is a type of bill. It’s an accounting document issued by one party to another – a business to a client – that outlines the products or services provided and details the amount of money owed for the said work. If you’re sending an invoice, it goes to accounts payable, and if you’re receiving one, it is directed to accounts receivable. An invoice is a business transaction, and it usually follows a specific invoice template, which clearly states the invoice payment terms.

How to write an invoice

If you need to create an invoice, there are several important things to consider. As official, legal documents, invoices need to be handled in a certain way. Once an invoice is sent out to a customer, it shouldn’t be edited or deleted. Invoices represent you and your business, so they must look professional and contain all of the right information.

A typical invoice will include:

• Your business trading name, address and contact details

• Your customer’s trading name, billing address and contact details

• The date of issue

• An invoice number: A unique (usually sequential) number generated by your business that is used for payment tracking purposes. When your client makes the payment, they will reference the invoice number.

• The invoice due date

• Details of the goods or services provided: This is usually listed and includes the price and a description.

• The total amount due

• Your business’s bank account details

Still unsure of how to write an invoice? You can find various free invoice templates and invoice generators online. The most common software to use is Excel, but there are alternative options to explore, including apps.

Bills vs. invoices: the subtle differences

The same information is conveyed in a bill and an invoice, but from an accounting perspective, there is a clear difference. The term invoice is generally used by a business seeking to collect money from a client for its goods or services. Alternatively, the term bill is used by the customer to refer to payments they owe suppliers for products or services. Look at it this way - you generate and issue an invoice but receive, record, and pay a bill.

What’s more, when you’re invoicing a customer, it’s likely that you are extending credit. In other words, the customer pays after they’ve already received a product or service. Bills, on the other hand, are expected to be paid immediately or upfront. Let’s say you went out for dinner, you’d pay there and then, instead of receiving an invoice payment at a later date.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.