Invoice vs bill: same document, two sides
An invoice and a bill are the same document. The seller calls it an invoice because they issue it to get paid, and the buyer calls it a bill because they receive it and have to pay it.
Are invoices and bills the same thing?
Yes, as a document. The invoice your supplier sends is the bill you record. Accounting software separates them by direction: invoices are money owed to you, bills are money you owe.
Are an invoice and a bill the same thing?
Yes. One document, two names, depending on who is holding it. When a printer sends you a request for payment, that document is an invoice from the printer's side and a bill from yours. The printer records it as money owed to them (a sale). You record it as money you owe (a purchase).
Here is an example with made-up numbers. Harbour Print sends you invoice INV-2041 for £1,200 plus £240 VAT, total £1,440, due in 30 days. In Harbour Print's books it is a sales invoice. In yours it is a bill with the reference INV-2041, the same date, the same total and a due date 30 days out. If the two sets of books disagree, look for a typing mistake, a credit note or a payment still in transit.
The word "bill" also has a second meaning that causes trouble. Outside accounting software, "the bill" can mean a restaurant check or a utility charge. In accounting software, a bill is a supplier invoice you have received.
What do Xero, QuickBooks Online and FreeAgent call it?
All three keep sales invoices and supplier bills apart.
| What you issue to customers | What you receive from suppliers | |
|---|---|---|
| Xero | Invoices | Bills, under Purchases then Bills |
| QuickBooks Online | Invoices | Bills (pay later) or expenses (paid at once), and it calls suppliers "vendors" |
| FreeAgent | Invoices | Bills, from the Bills tab |
Xero. In the Purchases menu, select Bills, then New bill. New bills can be saved as drafts, sent for approval or approved straight away, and approved bills wait in the Awaiting payment tab. Xero also says you can use a bill to record an expense you paid from a personal account, if your organisation does not use Xero Expenses (Xero Central).
QuickBooks Online. The split is about timing. QuickBooks says to use a bill when you receive goods or services now and pay later, and a check or expense when you pay at the time of purchase (QuickBooks help). Menu names differ a little between the US and UK versions, so check the screen you have.
FreeAgent. FreeAgent defines bills as "invoices that you receive from your suppliers" as opposed to those you issue to customers. It adds that other software may call this area Creditors, Suppliers or Accounts Payable. The bill's Reference is usually the supplier's invoice number, and the Bill Date is what the supplier calls the invoice date (FreeAgent support).
What goes wrong when people mix up the two?
- Recording a supplier invoice as a sales invoice. The amount then shows as money owed to you and inflates your income. Correct it and enter it as a bill instead.
- Paying an open QuickBooks bill with an expense or check. QuickBooks warns that this can leave the bill showing as unpaid and will not reduce the vendor balance correctly. Use Pay bills to close a bill.
- Entering the same supplier invoice twice. Xero warns you when a new bill has the same reference and contact as an existing one, but the warning does not stop you saving it. The duplicate invoice guide covers ways to catch these earlier.
- Using your own number as the reference. FreeAgent lets you choose, but the supplier's invoice number is what you will search for when the supplier chases payment.
How do receipts, pro forma invoices, statements and credit notes differ?
Several other documents sit near the invoice and get confused with it. This table shows what each one is and how it normally lands in your books.
| Document | What it is | In your books |
|---|---|---|
| Invoice (your bill) | A request for payment for goods or services supplied | Record as a bill. It creates a payable |
| Receipt | Proof that payment has been made | Attach it to a payment or an expense. It is not a request to pay |
| Pro forma invoice | An offer or quote in invoice form, often sent before goods are supplied | Do not record it as a bill. Wait for the real invoice |
| Statement | A supplier's list of what they think you owe | Use it to check your ledger. Do not record it as a bill |
| Credit note | A document that reduces or cancels an earlier invoice | Record it against the original bill. See what is a credit note |
A pro forma invoice needs a closer look if you are VAT registered. HMRC says a pro forma invoice used to offer goods or services cannot be used as evidence to reclaim input tax, even if it shows every detail a VAT invoice needs. If the goods are then supplied or payment is received, the supplier must issue a proper VAT invoice (VAT Notice 700, section 17.3). So book the cost from the VAT invoice that follows, not from the pro forma. The same guide lists what a VAT invoice must show.
Where does capture fit?
Datamolino collects supplier invoices, reads the header and line data, lets you check it and exports it to Xero, QuickBooks Online or FreeAgent as a bill, so it arrives on the purchase side. Credit notes are detected and exported as credit notes, not bills. See invoice automation for the checking step. For the steps from receiving a bill to paying it, read the accounts payable process.
Should I enter a supplier invoice I have already paid as a bill or an expense?
In QuickBooks Online, an invoice you will pay later is a bill and one you paid at the time of purchase is an expense. In Xero and FreeAgent, bills are the supplier invoices you have received, so a paid one is still recorded as a bill with its payment.
