What is the Difference Between an Invoice and a Bill?

What is the Difference Between an Invoice and a Bill?

Business owners have an obligation not only to their customers, but to themselves, to develop literacy with the financial instruments they will use every day.

When it comes to invoices vs. bills, it can get a bit tricky to understand what the difference is between the two documents and when to use either one. After all, a misunderstanding can lead to disaster as it can cause you anything from a mere headache to major financial loss. 
Let’s take a look at the distinct differences between an invoice and a bill and why it matters so much.

What is the Difference Between an Invoice and a Bill? 

Invoice and bill are a great example of the importance of words and communication. They are actually describing pretty much the same thing! So, why use two different words?

“One man’s trash is another man’s treasure.”
“One man’s ceiling is another man’s floor.”

These popular sayings serve to explain that most of what we experience in life is subject to our perspective. The same can be true in accounting, with bills and invoices:
“One man’s invoice is another man’s bill.”
Two different words are needed to help two different people communicate- it’s all about perspective. When it comes to a business relationship, having these two words accomplishes two important functions. First of all, it ensures that there are concrete terms to be used and understood on both ends. Secondly, it saves time in communications. By avoiding confusion and long explanations, “bill” and “invoice”  ensure that you and your customers or suppliers can communicate efficiently.

What is an Invoice? 

Invoice comes from the Sixteenth Century French word envoyer, which means to send. Well, that makes a lot of sense, doesn’t it? You send an invoice to your customer because you want them to pay you.
We also see invoice used as a verb. “Did you invoice Ms. Jones for the hat she ordered?” If you want to be paid for that hat, you better make sure you invoice her.
In short, an invoice is a breakdown of costs that is sent from the provider of a product or service, to the consumer. The invoice lists and describes whatever was provided, while also establishing the requirement and deadline for the consumer to pay their bill.

What is a Bill?

The word bill comes from the Medieval Latin word bulla, meaning sealed document. That became the Anglo-Norman French word bille, which morphed into the English word bill. 

Your vendor sends you a bill that you will then pay. If you print the bill and mail it, your customer will receive a sealed document. Even if you email it, there is a sense of the bill being a sealed document as long as that mail account is protected.

This word, too, has become a verb. “You billed me for two hats, but I only ordered one.”

An invoice is sent, while a bill is received. When you send an invoice to a customer, the customer then receives it as a bill- it’s all about the perspective. 

In short, an invoice means you are requesting money, and a bill means that you are required to pay for something. Not too complicated, right? This simple financial vocabulary allows everyone to understand where their money must go and what obligations they have to suppliers, customers, or businesses.

Could a Single Document be Both? 

When determining what the difference is between a bill and an invoice, like the trash vs. treasure metaphor, it depends on your perspective. You can create an invoice for Ms. Jones for her hat. You can email the invoice to her. She will receive the document and now have a bill to pay. Same thing. Different purposes.

Are “bill” and “invoice” interchangeable? In some ways they are. You can invoice your client for a hat, or you can bill your client for a hat. Either way, you’re sending a document that you want your client to pay.

But you don’t necessarily use both words when you’re talking about paying.  You say, “I have to pay my bills today.” You don’t typically say, “I have to pay my invoices today.” It’s also become a colloquialism for the benefits of employment. “I don’t love my job, but it pays the bills.”  No one says, “it pays the invoices.”

While the words bill and invoice are technically interchangeable, there’s a reason the two of them exist. As we established, the ease of communication that using both bills and invoices allows for is not to be underestimated. For simple administration and correspondence purposes, invoices and bills are used to keep everyone organized.

It’s really smart to have different terms because it helps define the work trail in your own firm.