Every single day, billions of invoices are delivered, examined, paid, and filed. But for many just starting out as freelancers or small business owners, the definition of an invoice may be somewhat hazy and easily confused with various other types of payment documentation including: receipts, contracts, and even bills of lading.
Whether it’s a template for a consultant invoice or an invoice for shipping charges, all invoices should share the same characteristics. Because invoicing can be complicated, we’ve broken down what invoices are exactly and what they are not.
What Is an Invoice?
According to Merriam-Webster, an invoice is defined as: “an itemized list of goods shipped, usually specifying the price and the terms of sale.” We would add that an item doesn’t need to be shipped to be considered on an invoice. It could also be provided to the customer at the retail point of sale. Invoices can also be received prior to receiving goods and services, in the midst of a project, or after the reception of goods and services.
Legally speaking, an invoice isn’t much different from a price tag on a supermarket shelf. An invoice isn’t considered legally binding until the customer agrees to the purchase, until then it’s just a list of prices with some additional language about the terms of payment. In some cases, it serves as a statement on refunds and exchanges.
Things Often Confused for Invoices
Many people think they have an invoice when in fact they have one of several different, but similar, documents. Here are a few things an invoice can be confused for and the key differences:
Receipts
First, an invoice is similar to a receipt in that it contains a list of goods or services that have been or will be purchased. Second, it contains a stated price for all the items or services listed, both individually and with a total sum to be paid at the bottom. Finally, it contains the name of the business the goods or services were purchased from.
What does an invoice need to include? Technically, an invoice can be considered a receipt if all items are clearly marked as paid and a copy has been provided to the customer. But outside of shopping in person at major retailers and receiving a printed receipt, virtually no one provides paper invoices anymore. A clear majority of purchases for goods and services these days are conducted digitally. So how do we prove the payment was made? Digitally, of course.
Major purchases for hundreds of thousands, or even millions, of dollars are agreed to, paid for, and confirmed all with the click of a button. After the payment is made, the business needs to confirm it with the customer. This can be done via email, SMS text messages, or in an online invoice system where customers must click “I agree.”
However, we recommend businesses provide a separate receipt in addition to the invoice. This can prevent further confusion down the road.
Purchasing Contracts
A contract is a legally binding document agreed to by two or more parties. The primary difference between an invoice and a contract is consent from both parties. Once an invoice has been agreed to, it can be considered a contract that states the business agrees to provide goods and services, while the customer agrees to purchase them.
However, you’ll need some form of proof that the customer agreed to the terms listed on the invoice in order for it to be considered a contract. As mentioned above, that agreement can come in many digital forms such as emails, texts, and the “I agree” button. You can also customize your invoices to include a section on terms and conditions, referencing an earlier contract. Always have your terms and conditions in writing, and make them clear to clients prior to issuing your invoice.
Bills of Lading
Similar to a receipt, a bill of lading lists all of the goods provided to a customer and the price of said goods. It differs from a receipt and an invoice in that a bill of lading is only used when something has been shipped to a customer. Typically the customer will examine the bill of lading, the goods delivered, and then sign the document to confirm that all products listed were delivered.
Invoice Ninja Does it All
By using Invoice Ninja, you can provide a price quote to your customers instantly via email. With a single click of “I agree,” the price quote is converted to an invoice that is then provided to the customer.
Once payment is received, the invoice is converted to a receipt that the customer can view at any time through our online portal. You and your customers will have a complete list of every quote, invoice, payment, and receipt at your fingertips. No more paper receipts, no more endless searching, and no more headaches!
