What is an invoice
An invoice is any document that comes with the product sent by a provider to the buyer. What it does is make a mark on the part of the buyer that he has an obligation to pay for the item he bought. On the other hand, seller can track what item is needed to be sent to the buyer.
Invoice serves more as a record keeping. It is a much simpler form of receipt, having nothing to do with an actual payment, and having nothing to track whether the item has been received or not. It lays down all the items, the quantities, the price of each item, and the total in a one document after both the buyer and seller made an agreement.
Invoice vs quote
But before an invoice is made, there is in business term called, quote. A quote usually comes before an invoice. Here, the document may not be as formal as an invoice. The prices may be negotiable. And it can be written on to any paper available. At times, it can only be verbal. Once both parties – provider and seller, agree on the prices, the former may now make the invoice. This is now the final agreement with prices fixed. Since a quote can be easily edited and changed, the concern for unnecessary corrections can be avoided. The quote works as a draft; and the invoice, the finished document.
The other two players are, receipt and proof of delivery. A receipt usually comes after a payment has been made. But like an invoice, a receipt also contains the items sold, as well as, their respective prices and the total amount. In some contries, the paper used in an invoice may look brownish or off white, much like the ones used in a newspaper. The paper in a receipt, on the other hand, are usually white, clean looking. But then again, do not overlook the details because the two may look just the same. And as a buyer, you may be receiving an invoice instead of a receipt. Remember, an invoice will not be honored for a refund by some establishments, especially government agencies.
The other one is a proof of delivery slip. Mistaking a proof of delivery for an invoice may not be that of a big deal. Still, the role of delivery slip is critical. It is to make sure that the buyer, receiver, or purchaser actually receives his order. It confirms the whole proceedure of the transaction.
In some countries, these business documents can get a bit complicated especially when they are in carbon duplicates. So you, as a buyer, need to carefully identify which one is which. Sellers do this to save time and money. But it can be tricky at times.
That being said, the document processing in a business transaction can be in this order:
QUOTE. Sort of an invoice but is less formal, ad not necessarily be part of the documentation. The prices may not be final always and can be negotiated. It is like a draft invoice.
INVOICE. The invoice is the documentation slip prior to the release of the receipt. This is where the items are presented, where the buyer is told how much he has to pay, and for the seller, the items that needed to be shipped or delivered.
RECEIPT. The receipt is the documentation that the buyer has paid the item that was arranged in the invoice. It is sometimes called OR,or Official Receipt because this is the documentation that is usually honored among the four.
DELIVERY SLIP. This is the last paper in the whole process of transaction. All it has to do is to inform the seller that the items being sent has been received by the recipient. There is also a term called bill of lading. And some people may interchange the use of the two.
The importance of using an invoice
A transaction may skip with using a quote. After all, it could just be a scratch paper with a list of items and its proposed prices. But that is not the case with an invoice. An invoice is an official document, but not a quote. When doing an accounting or bookkeeping, it is the invoice that the provider always goes to. It is because invoice, like receipt, is a registered document.
Some buyers may not look for the invoice in every transaction, which could mean they are only after the receipt. Even then, it is the obligation to always provide the buyer with an invoice, regardless if the buyer needs it or not. They should have not been optional. And this goes to all four documents from quote, to invoice, to receipt, and delivery slip.
Another reason why a business provider may use an invoice is that, it makes one’s business more professional. Without an invoice, buyers may think your business lacks tracking of the in and outs of the products. An invoice is a formal invitation by the provider to come up in terms with his buyers, to set limits and pricing goals. It is like an invitation card in a wedding. You are allowing, as a provider, your buyers to respect you because the buyers have something personal to see on paper. The buyer will feel he is someone special.
Because the invoice is a personalized agreement between the provider and the consumer, chances are, the final prices on the invoice may be lower than what is actually posted in the store’s advertisement. For example, a computer may have a tag price of 300 usd, but after some negotiations, the buyer and seller agreed that it would only cost 200 usd. The lowering of price will be put into record, and both the buyer and seller will always have something to look back into in case something happens before the actual purchase.
Who uses an invoice
If you have plans for your business to become big, looking professional, then the use of an invoice would be the way to go. And even if your business is small, your government may even require that you have one in every transaction.
How to make an invoice
The fastest way to make an invoice is to make a carbon duplicate from a receipt. That is how many providers or sellers do it. In that way, they save money and time designing it. But one can always make his own invoice design. And the best way is to use excel file. But why in excel and not in word document file? Using excel is easier because an invoice is nothing but a list of items along with the accompanying price. But a word file will do just fine. It is just a matter of how you design your invoice. One should remember that the kind of program used does affect the design and style when making an invoice.
There is an ongoing debate on whether we have a universal understanding of the terms invoice and receipt. In some countries, the two terms have different uses, and sometimes in the opposite manner. For example, when buying a food at a restaurant, do you get an invoice or a receipt? When buying a lumber at a hardware, will that be an invoice? Or a receipt. This can get confusing. Some countries, would assign billing or sales invoice for sales of goods, and ORs (Official Receipts) for sales of service. This may be an exception, an isolated case. But just shows to show how these two can be interrelated.
For some common folks, getting the kind of documentation when buying may not matter as long as they receive something that contains the list of the purchase. All that matters for the buyers is that they will be assured that the payment they give is actually the same as the one written in the accounting. But an invoice or a receipt is more than that. And that is why one should not be negligent in what the documentation slip says.
So that’s what an invoice does, to either the seller or the buyer. It strengthens the bond between the two parties. It sets goals, it makes adjustments, it finalizes the deal, it sets expectations. Without an invoice, your only documentation would be a receipt.
Final note, it should be a good habit not to throw away transaction slips: in (no order) receipts. delivery slip, quotation, and invoice.
If you are the buyer, never wait for the cashier to ask if you need after the transaction. It is a standard operating procedure.