Invoice vs Receipt: What's the Difference?

If you're running a small business or freelancing for the first time, you've probably wondered: what's the difference between an invoice and a receipt? They're both documents related to payments, they both involve money, and they can look surprisingly similar. But they serve very different purposes, and mixing them up can cause real problems with your accounting, tax returns, and client relationships.

This guide explains exactly what each document is, when to use which one, what each should contain, and why getting this right matters more than you might think.

The Short Answer

An invoice is a request for payment. You send it before you've been paid. It says: “Here's what you owe me, and here's when I need it by.”

A receipt is a confirmation of payment. You send it after you've been paid. It says: “Thank you — I received your payment. Here's the proof.”

That's the core distinction. An invoice comes before payment; a receipt comes after. Everything else flows from this simple difference.

Invoice vs Receipt: Side-by-Side Comparison

Here's a detailed comparison of invoices and receipts to make the differences concrete:

What Is an Invoice? A Closer Look

An invoice is a formal document that a seller sends to a buyer to request payment for goods or services. It's one of the most important documents in business — it's how you get paid, how you track what's owed to you, and how HMRC knows what income you've earned.

A typical invoice includes:

• Your business name, address, and contact details
• Your client's name and address
• A unique invoice number
• The date the invoice was issued
• A due date (when payment must be received)
• An itemised list of goods or services, with quantities, rates, and totals
• The subtotal, any tax (such as VAT), and the total amount due
• Payment terms (e.g., Net 30, due on receipt)
• Payment instructions (bank details, payment link, etc.)

Invoices are essential for B2B transactions. If you're a freelancer, contractor, consultant, or small business owner, you'll issue invoices regularly. They're also a legal requirement if you're VAT registered — you must provide a valid VAT invoice to your customers.

What Is a Receipt? A Closer Look

A receipt is a document that confirms a payment has been received. It's proof of purchase — evidence that money changed hands and the transaction is complete.

A typical receipt includes:

• Your business name and contact details
• The date of the transaction
• A description of the goods or services purchased
• The amount paid
• The payment method (cash, card, bank transfer, etc.)
• A receipt number or transaction reference
• Any tax paid (if applicable)

Receipts are what you get when you buy a coffee, pay a plumber, or complete a transaction in a shop. In B2B contexts, receipts are less commonly issued as standalone documents — instead, the invoice itself is often marked as “Paid” once payment is received, effectively serving as both the invoice and the receipt.

When to Send an Invoice vs. a Receipt

The flow of a typical business transaction looks like this:

1. You deliver goods or complete a service.
2. You send an invoice to the client, requesting payment by a specified date.
3. The client pays.
4. You send a receipt (or mark the invoice as paid) to confirm you received the payment.

In some industries, the order varies slightly. For retail and point-of-sale transactions, the receipt is issued immediately because the customer pays at the time of purchase — there's no invoice stage. For service businesses, the invoice always comes first.

Here are the key rules of thumb:

• Send an invoice when you've completed work and need to get paid. This is the standard for freelancers, contractors, and B2B transactions.
• Send a receipt when a customer pays you immediately, such as at a market stall, in a shop, or for a one-time digital purchase.
• Send both when you invoice a client, they pay, and they ask for a receipt as proof of payment. This is common when the client needs a receipt for their own expense reporting.

Why Does the Difference Matter?

Getting invoices and receipts mixed up might seem like a minor administrative issue, but it can cause genuine problems:

1. Accounting Accuracy

Invoices represent money you're owed (accounts receivable). Receipts represent money you've received. If you treat them interchangeably, your books won't balance. You might think you've been paid when you haven't, or fail to chase overdue payments because you've already issued a receipt.

2. Tax Compliance

HMRC cares about the distinction. If you're VAT registered, you're legally required to issue proper VAT invoices. A receipt is not a valid substitute for a VAT invoice. Your clients need invoices — not receipts — to reclaim the VAT they've paid. Issuing the wrong document can create tax problems for both you and your clients.

3. Legal Protection

An invoice is a formal record of a business agreement. It documents what was provided, the agreed price, and the payment terms. If a dispute arises, your invoice is a key piece of evidence. A receipt, on the other hand, proves that payment was made. Having both documents gives you a complete paper trail from agreement to completion.

4. Cash Flow Management

If you only issue receipts (confirming payment) but never issue invoices (requesting payment), you're relying on your clients to pay you voluntarily. Invoices are the mechanism that triggers the payment process — they set expectations, provide bank details, and create a due date. Without them, your cash flow becomes unpredictable.

5. Client Expectations

Larger companies and corporate clients have internal processes built around invoices and receipts. Their accounts payable department expects an invoice to process a payment. If you send them a receipt instead, they may not be able to pay you at all — or at least not without a lot of back-and-forth. Getting it right the first time saves everyone time.

Can an Invoice Serve as a Receipt?

Sort of — with a modification. Once a client pays an invoice, you can mark the invoice as “Paid” and send them a copy. This effectively turns the invoice into a combined invoice-and-receipt. Many small businesses and freelancers do this instead of issuing a separate receipt document.

This is perfectly acceptable in most situations. The marked-as-paid invoice shows what was owed, when it was due, and that it has been paid. It contains all the information both parties need.

However, there are situations where a client might specifically request a separate receipt — for example, for expense reimbursement or for their own tax records. In those cases, issue a dedicated receipt document with the payment date, amount, and method clearly stated.

Common Mistakes Small Businesses Make

Here are the most frequent errors small business owners and freelancers make when it comes to invoices and receipts:

• Sending a receipt instead of an invoice. If you send a receipt before you've been paid, you're telling the client the transaction is already complete. They have no reason — or obligation — to pay you. Always send an invoice first.
• Not issuing invoices at all. Some freelancers, especially those just starting out, accept payment via informal methods (Venmo, PayPal, or bank transfer) without ever sending an invoice. This creates problems at tax time because you have no formal record of your income.
• Not keeping receipts for business expenses. When you're the buyer, you need receipts to claim business expenses and reduce your tax bill. If you pay for software, equipment, or travel without getting a receipt, you may not be able to deduct it.
• Using the same document for both purposes. An invoice and a receipt are not the same document. If you use a single document labelled “Invoice/Receipt,” it's unclear whether payment has been made or is still outstanding. Use separate documents or clearly mark an invoice as paid.
• Forgetting to issue receipts when asked. If a client pays and asks for a receipt, provide one promptly. Delays in issuing receipts can slow down your client's expense reporting and damage the professional relationship.
• Not numbering receipts. Just like invoices, receipts should have unique reference numbers. This makes them easy to track, match to invoices, and reference in case of disputes.

Invoice and Receipt Workflow: A Practical Example

Let's walk through a real-world example to make this concrete.

Scenario: You're a freelance graphic designer. A client hires you to design a logo for £800.

1. You complete the logo design and deliver the final files to the client on 1 February 2026.
2. You send Invoice #INV-2026-015 on 2 February, requesting £800 with payment terms of Net 14 (due by 16 February). The invoice includes your bank details, a description of the work, and the agreed price.
3. The client pays £800 via bank transfer on 10 February.
4. You mark Invoice #INV-2026-015 as “Paid” and send the client a confirmation email. If the client needs a separate receipt, you issue Receipt #REC-2026-008, noting the £800 payment received on 10 February by bank transfer, referencing Invoice #INV-2026-015.

Both documents go into your records. The invoice shows the income you earned. The receipt (or the paid invoice) confirms it was collected. At tax time, both are available to support your self-assessment return.

Do You Always Need to Issue a Receipt?

In the UK, there is no general legal requirement to issue a receipt for every transaction — but there are strong practical reasons to do so:

• If the customer asks for one, you should always provide it. Refusing to issue a receipt looks unprofessional at best and suspicious at worst.
• For VAT-registered businesses, you must issue a VAT invoice (not a receipt) for transactions above £250. For transactions under £250, a simplified VAT invoice or receipt may suffice.
• For cash transactions, receipts are especially important because there's no automatic bank record of the payment. A receipt is the only proof that money changed hands.
• For your own records, having a receipt on file for every payment received makes bookkeeping easier and provides evidence in case of disputes.

Best practice: always issue a receipt (or mark the invoice as paid) whenever you receive a payment. It takes seconds and saves potential headaches down the road.

Other Related Documents You Should Know

While we're clearing up confusion, here are a few other financial documents that small business owners sometimes mix up:

• Proforma invoice — a preliminary invoice sent before goods or services are delivered. It's an estimate, not a demand for payment. See our proforma invoice guide for details.
• Credit note — issued when you need to reduce the amount on a previously issued invoice, such as after a partial refund, discount, or error. It references the original invoice and reduces what the client owes.
• Purchase order — a document the buyer sends to the seller to formally order goods or services. It comes before the invoice and often needs to be referenced on the invoice for the client's records.
• Delivery note — accompanies a shipment of goods and lists what's being delivered. It doesn't include prices and is not a financial document, but it helps the buyer confirm they received everything.
• Statement of account — a summary of all invoices, payments, and outstanding balances for a client over a period. Useful for clients with multiple invoices to help them see what's paid and what's still due.

How Long Should You Keep Invoices and Receipts?

In the UK, HMRC requires you to keep records for at least 5 years after the 31 January submission deadline of the relevant tax year. For example, records for the 2025/26 tax year (filed by 31 January 2027) must be kept until at least 31 January 2032.

This applies to both invoices you've issued (income) and receipts you've received (expenses). Keep digital copies of everything — either scan paper documents or use digital invoicing tools that store records automatically. If HMRC ever audits you, having complete records makes the process far smoother.

Create Professional Invoices with InvoiceForge

Now that you know the difference between an invoice and a receipt, the next step is making sure your invoices are professional, complete, and easy to create. InvoiceForge lets you build a polished invoice in under 30 seconds — add your details, list your line items, and download a ready-to-send PDF. No sign-up required. When your client pays, mark it as paid or create a matching receipt just as easily.