Billing and invoicing: What you need to know

While billing and invoicing are both methods of exchanging payment for a product or service, there are crucial distinctions.

Let’s look at these differences and explore how to optimize your billing and invoice management.

What are bills and invoices?

Whether you’re billing someone for a product or issuing an invoice for services provided, billing and invoicing have the same purpose: to get the right person or organization paid.

Alongside setting out how much money needs to be paid, invoices and bills can both be used to record information relating to the exchange of funds, such as the date, product/service provided or the recipient’s name.

accountants discussing bills and invoices

Billing and invoicing: What’s the difference?

Here are some key distinctions between billing and invoicing:

Billing is typically used in business-to-consumer (B2C) transactions, when payment is exchanged there and then; e.g. a bill issued by an auto repair shop that’s payable immediately
Invoicing is often used in business-to-business (B2B) dealings; e.g. a contractor issues an invoice payable within 4 weeks. Invoices include details like quantities, business addresses, payment terms etc. to ensure good recordkeeping.

Featured Guide

Navigating the nuances of billing and invoicing

In this essential free guide, we’ll issue explanations for billing, invoicing, and everything in between – including how to optimize invoice and billing management

Download now

Billing vs invoicing: When to use it

If payment is expected before or immediately after delivery, you need a bill, e.g. a customer paying the bill after eating at a restaurant
If payment is not required on the spot, use an invoice, e.g. an accountant issuing their client an invoice after completing a tax return

employee wondering if they should use bill or invoice

Perfect your invoice and billing management

Brilliant invoice and billing management can make life a whole lot easier – especially for busy accountants and other service providers.

Check out some of these strategies and improve how you approach billing and invoice management.

Get on the same page as clients
It may sound obvious, but before you even think about issuing an invoice or bill, you need to know you and your client are already on the same page with what’s being charged and why.

Before beginning any work, obtain written approval from clients on:
- What services/products are being provided
- How much they’re going to cost
- When payment will eventually be due
Whether you issue a formal estimate or send over the information via email, do not proceed until you secure the client’s written approval.
Check what you’re charging
As part of improving invoicing and billing management, take steps to ensure you’re charging what your service is truly worth.

To achieve this, conduct regular reviews of billing practices and rates. You might wish to adjust them to align with and reflect:
- Fluctuating market trends
- Your firm’s growing expertise
- Rates of any competitors
- Costs to expand capacity (e.g. outsourcing)
Keep work covered to avoid writing it off

As part of reviewing your billing and invoicing management, check how you’re classifying and tracking ‘out of scope’ work.

We recently spoke to some leading accountancy firms who all reported a similar story: a client hires them for a specific task but asks them to “take a quick look” at another task during that time. The firm wants to provide great service, so they agree. But because the extra work is outside the scope of the original contract/agreement, it has to be written off; which costs the firm time and money.

A thorough estimate process and clear communication up top around what clients need to pay for can help mitigate this issue. You can always offer to write off a small amount of extra work to keep clients sweet.
Set frequent, fixed invoicing days

Even with the best intentions, if your invoicing policy amounts to “send out invoices as and when needed”, the task will inevitably become deprioritized – and you may find invoices falling through the cracks entirely.

Consider setting up fixed invoicing dates during the week or throughout the month, depending on the volume or frequency of invoicing required. This can help improve cash flow and reduce the likelihood of invoices being missed.

Once your system is running smoothly, you could even offer clients a small discount if they were to pay their invoices early.
Make it easier for people to pay you

If you want to receive payments promptly, in full, and on time every time, take a look at how you’re facilitating that payment process.

Offering clients convenient ways to submit payments – ideally, more than one – can help encourage swift payment and improve your client’s experience with your firm.

If you haven’t already, explore how you might provide clients with the means to pay bills or invoices online. This quick, convenient method can mean faster payments – which helps improve cash flow.

: No, when requesting a payment from a client, you only need to issue either a bill or an invoice; as an accounting firm, this would typically be in the form of an invoice.

When invoicing a client, they may refer to your request for payment as a “bill”, but it’s just a figure of speech in this case.
: Yes, invoices are considered legally binding documents. Invoices also function as financial records for taxation purposes relating to goods and services provided.
: No. Receipts are legal evidence of a payment being received, whereas a bill represents the request for funds and proof the transaction exists.

For example, you might receive a bill at a salon after getting a haircut, as proof the service has been rendered and the payment is due. After you’ve paid the salon, you’ll receive a receipt to prove the payment has been made.
: Payments and billing are two distinct parts of the same overall process of requesting and receiving funds.

Billing covers the initial part of the process, where you’re requesting payment and, in some cases, closely tracking how and when that payment is being made.

Payment describes the process of actually transferring funds from the client to the recipient/vendor; for example, money moving from a client’s bank account to the vendor’s.