Billing and invoicing are two common financial terms. Both refer to documents requesting payment from clients; often interchangeably.
But while billing and invoicing are similar, businesses must understand the differences between the two. Small nuances will help you stay compliant, meet financial obligations, and prevent revenue leakage.
On this page, we’ll cover what billing and invoicing are; key differences between them; 5 tips for maximizing revenue by using both appropriately. Let’s start with…
Billing is the process of creating and sending bills to customers who owe us money.
A bill is a simple document that a supplier requesting payment issues to a customer. The bill usually lists services and the total amount owed. It does not list a due by date as funds are due immediately upon receipt.
Here’s a common example of a bill. When a customer eats out at an establishment, the latter issues a bill listing items purchased and total amount due. The customer is expected to review the bill, pay the amount immediately, and retain the receipt as proof of payment.
Invoicing is the process of creating and sending invoices to customers after providing them with goods or services.
An invoice is a lot like a bill, but more complex. Unlike a bill, an invoice usually has a due by date. Funds are due at a specified date – which will have been previously agreed upon. Additionally, an invoice can include all of the following:
Here’s an example. A building contractor may provide an invoice detailing all associated costs and fees for a construction project. The invoice will also specify the payment terms and the due date for a payment.
Once the customer receives the invoice, they are expected to…
A customer receives both bills and invoices. The key difference between the two lies in their level of detail and purpose for accounting.
A bill is a simplified financial document highlighting the total amount due, intended for the customer. Bills indicate the total amount owed by the customer for goods or services rendered.
An invoice is a more comprehensive record meant for both the customer and the seller. It itemizes the products or services provided, their costs, and their payment terms. As such, it can be a lot more complex than an invoice.
The timing of payment is an essential distinction between billing and invoicing.
Billing requests payment from the customer immediately upon receipt of the bill. Invoicing is a little more detailed, with the business indicating payment is due at a specified future date.
Billing is best for smaller or one-time transactions. This includes self-serve software transactions. Invoicing, on the other hand, is better used for larger transactions, where payment may not be due for several weeks or months.
Invoicing is especially common in business-to-business (B2B) transactions and big purchases. It’s standard for companies to agree to payment terms such as net 30 or net 60, i.e. payment is due 30 or 60 days after the invoice date.
Billing may provide more immediate cash flow since payment is requested on receipt. Invoicing, on the other hand, can take longer to generate cash flow since payment may not be due for several weeks or months.
Proper billing and invoicing management ensure timely payment and helps avoid cash flow problems. Using an automated system, such as Salesbricks, simplifies the payment process so you can focus on other aspects of your business.
Billing is often used for one-time payments, while invoicing is more commonly used for recurring payments. Invoices provide visibility into a customer's current and past payments – which can be especially helpful for businesses that offer subscription services.
Invoices allow you to create a customer statement, meaning you can more easily track and manage payment schedules. This is also helpful for customers with recurring payments, as they can view their billing history and ensure they've paid all outstanding invoices.
nvoicing vs billing isn’t a one-time choice. It’s a choice you should make often, because using each document type in different circumstances can help increase (and stabilize) revenue. Here are 5 specific ideas to do that by making better choices.
Determine if your transactions are primarily one-time, smaller transactions or larger, recurring transactions. This will help you decide whether to use billing or invoicing, or a combination of both.
Understand the payment terms you offer to your customers or clients, and choose the method that aligns with those terms. For example, immediate payment terms are better suited for billing, while net payment terms work better with invoicing.
Explore the benefits of using automated tools and software to manage your billing and invoicing processes. A solution like Salesbricks can save time, reduce errors, and improve cash flow by preventing revenue loss.
Track and analyze financial data related to billing and invoicing to make informed decisions and adjustments. For example, if you see that invoices of one type get paid faster, use that insight to change invoicing frequency and terms.
Branded documents, URL-based invoices accessible online, and documents that deliver themselves automatically. These are just a few ways to improve the user experience for your customers.
Consider using a solution like Salesbricks to make these little improvements and improve payment speed, payment completion rate, etc.
Deciding when to bill or invoice in the software space is tricky. Here are some tips based on our founding team’s experience.
Billing and invoicing are two distinct financial terms that are often used interchangeably but follow different payment processes. Understanding the differences can help businesses choose the right solution for their needs.
Streamlining billing and invoicing is an important step for any business. Doing this will help to ensure timely payments, improve cash flow, and provide accurate records.
Salesbricks makes automating the billing and invoicing process easy. With Salesbricks, businesses can send invoices quickly and efficiently, track payments and manage customer data.
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