Numerous transactions are made daily in business, such as payments coming from customers and payments going to suppliers or vendors. This regular cash flow keeps the business operational. Cash flow can be compared to the blood circulation of any business and thus determine the business's health. This is where the invoice and bills come in.
This article will discuss the definition of an invoice and bill. We will also discuss how they work and how they differ from each other.
A business issues an invoice to get paid for the service or product it sold. Additionally, an invoice is required to conduct business and regulates business relations between a buyer and a seller in the case of payment.
Invoice details include:
An invoice is usually issued after the business completed the customer’s order and requests the payment of the order.
An invoicing system is software designed and developed specifically for generating an invoice automatically after a product or service is rendered. This system creates a product description and associated costs and sends the copy to the business's client as an invoice.
The word "bill" refers to an accounting document that states the amount of money the business has to pay for a service or product purchased. Bill is a part of the invoicing process.
Although the two terms are closely related, there is one main difference. When a company sends you a commercial document for a payment request, that company expects you to pay the bill. For that company, the document is an invoice, upon receiving by you that documents become a bill.
The invoicing system is software designed and developed specifically for easily generating an invoice after a product or service is sold. This system creates a product description and associated costs and sends the copy to the client for collecting due payment as an invoice.
A sophisticated invoicing system comes with a dedicated billing system. This billing section allows the user to track bills for billable products and services purchased by the business. The program simplifies the process of payments due by the business and can also track the work hours of team members for billing purposes.
Invoicing systems speed up the process of collecting due payments and ensure businesses get paid on time.
Must have features in an invoicing system:
You can set up recurring invoices to be issued for the regular customer using the invoicing software. This feature will save time for both ends.
The invoicing system comes with visually appealing built-in templates, which are also customizable. This feature enables a business to choose its preferred templates and make changes based on needs, such as resizing the business logo and fonts, changing the color etc.
Paying tax is compulsory for business. An excellent invoicing software can determine the tax amount and tell the user whether TAX/VAT should be applied to the product or service sold.
Business relies on cash flow. This is why a business needs to get reminders about upcoming, due, and overdue payments. Automated software can take care of that responsibility by segmenting the reminders, such as reminding the customer of the last due date before five days.
There will be a situation where a customer might ask for a quotation. You can easily create a quotation using this system and send it to the customer. On top of that, if the customer accepts the quotation, the software can convert it to an invoice.
A good software will keep the logs after each entry and can tell who is responsible for the modification and the entry time.
Sometimes, your customer might return goods to you. In that case, the automated system can generate a receipt and give it to the customer.
Since invoices are created for each client, it is important to have a separate client section where all client information is recorded.
Typically, the user will have to input the client’s information in the invoicing system before or during the creation of the invoice or quotation. This process allows the business to build a sophisticated client database which can be used later on for sending notifications or quotes to each client when necessary.
Businesses can create catalogs for goods and services, including prices and units, all in one place. Catalogs are essential for invoicing process because, in the catalog, the business will have to input the list of all products and services that will be invoiced later on.
For a business to survive and to keep the selling process running, it is essential to track stock. The stock management function allows the user to track inventory and warn you about the low stock so that you can replenish your stock level before it runs out.
With a cloud-based invoice system, a business can easily create invoices with a payment link and send multiple copies to multiple clients and accept payments from them simultaneously.
Excellent software should provide you with overviews and reporting based on product groups and subgroups. Common Reports are:
In a business, it's essential to divide roles and responsibilities among employees. An exceptional invoice system comes with “Role-Based Access Control (RBAC).” This feature defines the permission of access for each employee so that everyone can use the invoice software for their specific work, such as pricing, managing inventory, processing the invoice, approving the invoice, etc.
Businesses can find out the most sold products or services by analyzing invoices.
The program allows the user to take care of due payments. Based on predetermined dates, the software reminds the business to follow up on due payments. The software also can create automated payment schedules, such as monthly or yearly.
Every firm, large or small, must invoice clients to assure payment for services or items rendered. This is an essential aspect of any commercial transaction and keeps the company's cash flow in check.
However, you must maintain certain things in business before processing an invoice, such as inventory, products or services catalog, setting up the payment method, managing clients etc. Luckily, the system can help you take care of these.
Invoice processing varies based on the business nature, but the uses of accounting principles remain the same.
Here are the standard invoice processing steps:
Business creates invoices to get paid. Since invoices are paid late, businesses should practice sending invoices weekly. Preparation of an invoice starts when Goods or services are sold to a customer.
Prepare an invoice for the service or product sold. In the invoice template, the business should add the following:
Certain invoices might require approval from higher authority. Using the invoicing system, staff members can schedule multiple invoices to the higher authority for completing the approval process.
After approval of the invoice, the system can send the invoice to the clients for payment in various formats, such as PDF or docs by email.
In an invoicing system, payment should be processed in various ways, such as bank transfers, bank checks, etc.
Online invoicing includes a payment gateway integrated with it. The customer can make the payment using a credit or debit card through the payment gateway.
Some customers prefer the traditional way. Though these methods take time and cost a trip to the bank to make payments.
In case of regular customers, the business can schedule the payment option for that specific customer. In this way, the user of the system won't have to create invoices for the same customer again and again.
Businesses can use the invoicing system to follow up on unpaid invoices and send a reminder for upcoming payment.
Upon receiving the payment, using the system, the business does the following:
Using the invoice system, business can chase the payment in various ways:
In this case, the business records the payment as bad debt.
Here in this section, businesses collect customer’s information, such as name, address, telephone or mobile number, etc., to build a client database in the system.
The invoice system keeps a catalog of offered services and goods along with a price tag. Using this function, a user can generate a quote and send it to the potential customer upon request.
In this section, the responsible person creates a purchase order for new stock and sends it to the supplier. Upon receiving products, the inventory stock amount is recorded in the system. Additionally, the smart system notifies the user about a low stock.
The invoice system can generate financial reports for better insight by analyzing provided data, such as a successful collection of payments, bad debt etc.
One might get confused about these two, as they seem the same. This confusion occurs because they describe the same things in different ways. It depends on which side of the coin you are on. For example, the business sends an invoice to the client, and the client receives it as a bill. So whether you are a sender or receiver, let's explore more about their differences.
|
Context |
Invoice |
Bill |
|
Document Type |
A formal way to request payments from clients |
The service provider issues bills to the clients after receiving the payment. |
|
Unique Order Number |
The invoice contains a unique order number |
The unique number is not essential for bills |
|
Transaction Type |
They are issued for credit transactions as the product or service has already been sold |
Immediate cash or other forms of transactions upon receiving the document |
|
Purpose |
Used for customer behavior analysis, financial reporting |
Bills serve as proof of financial transactions for future reference. |
|
Information |
Contains detailed information about products and services, such as item name, price, quantity, and both parties' addresses. |
Bills don't need to contain detailed information. |