What’s The Difference Between Billing & Invoicing?
For some, billing and invoicing are interchangeable with each other. They’ll just as quickly ask for the bill, as they will ask for the invoice. However, when you look at them closely, they’re different approaches to getting paid.
Here’s your guide to help you learn more about the difference between billing and invoicing so you won’t make the simple mistake of mixing them up.
What Is An Invoice?
An invoice is a document that details the items and/or services a company provides their client and the cost for those services. The most important part of an invoice is that they also include a payment due date.
The most common length for due dates of an invoice is either a 15-day grace period or a 30-day grace period. These typically get abbreviated to a net 15 (for having 15 days to make the payment on the invoice) or a net 30 (for having to make the payment on the invoice). Some invoices may have a longer grace period, and you may see net 60 or net 90 in some industries.
To help incentivize clients to pay early, some invoices may have also include a discounted payment rate if the payment is made early. These discounts will appear as fractions before the net rate. The fraction's numerator is the percentage reduction, and the fraction's denominator is how long the deal lasts.
For example, a 2/10 net 30 deal on an invoice would mean you have 30 days to pay the invoice (net 30), but if you make the payment within the first 10 days, you will get 2% off (2/10).
Some companies have standardized invoice terms that they use as a blanket rate for all customers, but most companies are willing to negotiate deals to allow longer payment periods for trusted customers or higher discounts for earlier payments to motivate faster cash flow.
How Is A Bill Different Than An Invoice?
While both a bill and an invoice enumerate the services or products provided and their cost, the biggest difference is when you have to pay. Invoices include a time frame for when payment is due, where bills need to be paid immediately.
When Should I Use A Bill Or An Invoice?
Because they are similar, it can be difficult to tell if you should call it a bill or an invoice. The best way to tell is to look at the time spent between delivery and payment.
If there’s a gap in time between delivery and payment, use an invoice.
If payment is expected before or directly after delivery, use a bill.
Using this simple rule of thumb, going to eat at a restaurant is a bill because you were served food, ate it, and immediately paid. However, having that same restaurant cater an event where payment isn’t expected until a week after the event would use an invoice.