Bookkeeping 101: Are Bills The Same As Invoices?

Key takeaways

• Recognize that an invoice is a seller’s formal request for payment, while a bill is what the customer owes.
• Record invoices as accounts receivable and bills as accounts payable to keep your books accurate.
• Remember that the same document is an invoice to the sender and a bill to the receiver.
• Distinguish a receipt as proof of payment, issued only after the money changes hands.

What’s an invoice?

An invoice is a seller’s formal request for payment on a sale, usually due at a later date. In bookkeeping, invoices are recorded as accounts receivable (AR).

When accompanied by a signed contract or an order confirmation, an invoice can become a legally binding document. This means it can be enforced to collect any outstanding payments from customers. As it provides a record of items or services sold, it’s also used for taxation, financial reporting, and accounting.

According to U.S. law, a valid invoice needs to follow a specific format, unlike a bill, which is more flexible.

What’s a bill?

A bill is any document a customer receives that states an amount owed, including an invoice. Unlike an invoice, a bill has no required format.

A bill can also be due immediately upon receipt. What you get at a restaurant, for example, is a bill but not an invoice.

Unpaid business bills are handled as part of the payor’s accounts payable (AP) process.

When are bills and invoices used interchangeably?

It comes down to perspective. The seller calls it an invoice and records it as AR. The buyer calls it a bill and records it as AP. Same document, two views.

Say your business issues a document with all the mandatory invoice details. That’s likely what you’ll call it when you send it to get paid. Since you expect payment soon, you’ll list the invoice as AR, a type of asset.

Your customer, on the other hand, will treat and refer to this document as a bill. They enter it in their books as AP and list it as a liability since it needs to be paid soon.

In this case, the same document is called both a bill and an invoice, depending on who’s speaking.

So, what’s the difference between bills and invoices?

The key differences come down to format, timing, and legal weight:

• Format: An invoice must follow a set format with required fields. A bill can be any document showing an amount owed.
• Timing: A bill can be due immediately, while an invoice usually has a future due date.
• Legal weight: Paired with a signed contract, an invoice can become legally binding. A bill generally is not.

Combined with a signed contract, an invoice can become legally binding and used in court if it isn’t paid on time.

Bill vs. invoice vs. receipt: how do they compare?

It helps to see all three documents side by side, since they show up at different points in a sale.

• Invoice: a seller sends it to request payment before the customer has paid.
• Bill: the customer receives it and treats it as the amount they owe.
• Receipt: the seller issues it after payment, as proof the sale is complete.

In short, an invoice asks for payment, a bill is what you owe, and a receipt confirms the money changed hands.

Manage your business bills and invoices online

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