What is an invoice?
An invoice in accounting is a document that requests payment for goods or services you’ve provided. It acts as a formal record of the transaction, detailing what was sold, the amount due, and when payment is expected.
If you’re unsure about how to structure one, check out our guide on how to write an invoice for a step-by-step breakdown.
Invoices typically include a unique invoice number, the date of issue, a breakdown of products or services, and payment terms.
If both you and your customer are VAT-registered businesses, you must issue an invoice by law. Even if you’re not VAT-registered, keeping invoices helps with accounting, tax reporting, and maintaining a professional image.
Unlike a receipt, which confirms payment, an invoice is a request for payment.
What is an invoice number?
An invoice number is a unique reference assigned to each invoice a business issues. It helps keep records organised, track payments, and prevent duplicate invoices.
Using a structured numbering system makes it easier to find and manage invoices.
Common formats include:
- Sequential numbers: invoices are numbered in order (such as 1001, 1002, 1003).
- Date-based numbers: the invoice includes the date of issue (such as 20253101-001 for 31 January 2025).
- Customer-specific numbers: an identifier for the client is included (such as SA-1001 for Smith Air Conditioning’s first invoice).
What is an invoice used for?
Invoices are a key part of running a business. They help track payments, keep records organised, and make sure you get paid on time.
Here’s how businesses use invoices in their day-to-day operations.
To request and collect payments
An invoice is a formal request for payment, telling your customer what they owe, when it’s due, and how they can pay.
Sending clear, professional invoices helps avoid delays and makes it easier to follow up on outstanding payments.
To track sales and cash flow
Invoices act as a record of what you’ve sold and when, making it easier to keep tabs on your income and cash flow.
By tracking which invoices are paid and which are still outstanding, businesses can stay on top of their finances.
To help customers manage payments
Invoices don’t just benefit businesses—they also help customers track what they owe.
By providing clear payment terms and due dates, invoices make it easier for customers to manage their own finances and avoid missed payments.
To support stock and service tracking
For businesses that sell products, invoices help monitor stock levels and predict future demand.
Service-based businesses can use invoices to track completed work, ensuring that every billable hour or project milestone is accounted for.
What is the purpose of an invoice?
Beyond their everyday use, invoices play a bigger role in keeping businesses legally and financially secure.
Here’s why they matter.
To formalise a sale
An invoice is more than just a payment request. It’s a written record of an agreement between you and your customer.
It clearly lays out what was sold, the cost, and when payment is due, helping to prevent misunderstandings.
To ensure tax and legal compliance
Invoices provide proof of income, which businesses need for tax filings and VAT claims. Keeping accurate invoices also makes it easier to prepare for audits and financial reviews.
To protect businesses legally
If a customer disputes a charge or fails to pay, an invoice serves as evidence of what was agreed. It helps to resolve issues quickly and provides legal protection if needed.
To improve financial management
Invoices create a clear financial trail, making it easier to track income, manage outstanding payments, and forecast future revenue.
They help businesses stay organised and in control of their finances.
What is the difference between an invoice and a receipt?
Invoices and receipts might seem similar, but they serve different purposes in a business transaction.
The key difference?
An invoice asks for payment, while a receipt confirms it.
- An invoice is a request for payment. It’s sent to a customer after goods or services have been provided, outlining what they owe, when it’s due, and how they can pay.
- A receipt is proof of payment. It’s issued after a customer has paid, confirming that the transaction is complete. Some receipts may also include an invoice number, which leads many to ask, what is an invoice number on a receipt? While the invoice number itself doesn’t change, it may be included on a receipt as a reference to the original invoice. This helps businesses and customers track payments and link them to specific sales.
Key differences at a glance
| Aspect | Invoice | Receipt |
| Timing | Sent before payment to request it. | Issued after payment to confirm it. |
| Purpose | Outlines what’s owed and sets payment terms. | Confirms payment has been made. |
| Content | Includes payment details, due dates, and itemised costs. | Focuses on the payment itself, listing the amount paid, payment method, and date of payment. |
| Accounting treatment | Recorded as accounts receivable, representing money owed to your business. | Documented as income, confirming that payment has been received. |
How invoicing software can help
Manually creating, tracking, and managing invoices can be time-consuming, especially as your business grows.
Invoicing software simplifies the process by automating invoice creation, tracking payments, and helping you stay on top of outstanding balances.
It reduces errors, ensures invoices meet legal requirements, and gives you real-time insights into your cash flow.
With invoicing software, you can generate professional invoices quickly, set up automated reminders for overdue payments, and integrate invoicing with your accounting system—helping you get paid faster while keeping your finances organised.
