What is the Main Difference between Invoice and Bill?

When it comes to transactions, both for business and personal purposes, there are two terms that are often used interchangeably, which are invoice and bill. These documents are incredibly important to ensure timely payment, but what exactly are they, and how are they different from each other? 

Have you ever been confused when you have to use an invoice or a bill? Don’t worry, you’re not alone. In this blog, we will explain the comparision between an invoice and a bill, how they are used in business and why they are so important, along with an example and use cases. 

Meaning of an Invoice 

An invoice is a formal document that is issued by a seller to a buyer, outlining the products or services sold. It also contains the terms and conditions of the payment, and is used as a formal request for payment. If you are a GST-registered business, your invoice must include a GST breakdown and the total payable amount. 

Use Cases of Invoice

• B2B Transactions: Under GST regulations, it is mandatory to use an invoice in B2B transactions. It must include details like quantity, price and taxes charged on the goods sold.

• Tax Purposes: Invoices assist a business in keeping their sales records in order to file the GST returns. The GST details are also provided in the invoice and will be utilised later in making claims on the Input Tax Credit (ITC).

• Export Transactions: In the case of exporting, invoice confirms the shipment and plays a vital role in claiming refunds on taxes payable in export transactions under the GST.

How Invoice is Used in Business (Example)

An invoice is issued in a B2B transaction between a wholesaler and a retailer. The retailer is supposed to pay the total amount mentioned on the due date as specified on the invoice. 

For example, if a wholesaler in Mumbai sells goods worth say ₹50,000 to a retailer in Delhi, an invoice will be issued to the retailer in Delhi showing the total amount due, including GST at 18% which means the total payable will be ₹59,000.

For service-based businesses, such as a consultancy firm, an invoice is used to seek payment for the services rendered. If a consultant does advisory services of ₹10,000, at 5% GST, ₹500, the total invoice will be ₹10,500. The client is expected to pay this amount within a specified period of time stated in the payment terms and conditions. 

Read More: Importance of E-invoicing for B2C

Meaning is Bill 

A bill is a less formal request for payment, and is usually made in transactions where immediate payment is expected, or is made at the time of service or delivery. A bill ordinarily does not include as much information as an invoice. It is basically a statement that indicates the amount due, and usually it is easier to understand than an invoice.

Use cases of Bill 

• Retail and Service Sector: Bills are generally common in retail stores or restaurants. When you purchase a product from a store, the store gives you a receipt reflecting the cost of the item, taxes and total due.

• One-time Transactions: If a plumber fixes the leak in your house, he may provide you with a bill at the completion of the service, detailing how much he charges for the work that was done, and what parts were used in the service.

How Bill is Used in Business (Example)

Take the case of the restaurant you visit, the waiter gives you a bill which contains a description of the food and beverages, plus the taxes such as GST. Upon payment of the amount, the deal is closed. This is the same situation in retail transactions, when you buy something, you are given a bill, highlighting the price and the tax involved.

Difference between Invoice and Bill

Aspect	Invoice	Bill
Formality	It is a formal request for payment, generally sent before the payment.	It is an informal request for payment, generally sent at the time of payment.
Purpose	Used in business transactions where goods/service is sold on credit.	Used in business transactions where payment is made immediately.
Details	It includes detailed information, such as payment terms, due date, and breakdown of taxes.	Normally, it just shows the total amount due, without detailed breakdowns.
Legal Requirement	Required in B2B transactions where GST is applicable.	Not required, unless GST is applicable.
Payment Terms	It specifies payment due date and terms and conditions.	No payment terms are mentioned, since payment is expected immediately.
Tax Implications	Includes GST details.	May or may not include GST details.
Used By	It is used by businesses, especially in B2B transactions.	It is used in the service and retail industry.
Follow-Up Action	Businesses may follow up for payment if the deadline is passed.	Not needed since payment is made immediately.
Frequency of Use	It is used in high-ticket or ongoing business transactions.	It is used for one-time transactions.

Conclusion

In conclusion, both invoices and bills are used for requesting payment for goods or services, but they have different roles in business transactions. As an Indian business owner, it’s important to know when to use which document. Invoices are important for taxation purposes, and are subject to compliance with the GST regulations. On the other hand, bills are usually used for transactions that need to be paid immediately, usually in the retail and service industries.

Is the invoicing or billing process too much of a burden for you? If you are looking for software that can help simplify the process of invoicing and creating bills, then the answer is right here. Munim Accounting and Billing is an all-in-one accounting solution that helps you generate invoices and bills, and also provides accounting features. We highly recommend that you sign up now and experience its simplicity. 

Frequently Asked Questions

Are the invoice number and the bill number the same?​

No, an invoice number and a bill number are not the same. Both documents serve different purposes. 

Can the invoice date and the e-way bill date be different?​

Yes, the invoice date and e-way bill date can be different.

Can an invoice be generated both in the computer and the bill book?​

Yes, an invoice can be generated both on a computer (using accounting software like Munim or other tools) and manually in a bill book.

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