No matter how easy your payroll is, any savvy business owner needs to have a clear understanding of types of financial transactions made, like billing vs invoicing.
By the Roll Editorial Team on February 09, 2024
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When accounting processes run smoothly, businesses do too. Employees get paid on time, end-of-the-year tax filings are less stressful, and keeping track of important documentation becomes second nature. This is especially true when working with contractors and freelancers.
But what’s the secret to achieving truly smooth and seamless accounting? An innovative app that handles all your payroll needs for you!
Roll by ADP™ offers an innovative payroll app for small businesses that makes paying W-2 and 1099 employees easier than ever. With Roll, you can:
Yep, you read that right — and Roll will calculate, deduct, and pay your taxes for you.
No matter how easy your payroll is, any savvy business owner needs to have a clear understanding of types of financial transactions made — like billing vs invoicing.
Let’s take the first step together by exploring the difference between bill and invoice use cases, payment terms, and how each is processed.
The term “invoice” refers to any document issued by a seller to request payment for goods or services provided. It details the specifics of what’s been delivered to the recipient, as well as all associated costs, and clearly states when payment is due.
Is an invoice a bill? The short answer is that while they’re similar, they’re not the same thing. A bill is also issued by a seller and requests payment for goods or services, but the expected timeframe for payment is much shorter (often immediate). Additionally, bills can only be given after a product or service has been delivered, whereas invoices can be sent at any point in a sales cycle.
The terms “invoice” and “bill” are often used interchangeably, but there are key differences between the two. It’s important for businesses to be aware of these differences in order to maintain proper documentation and properly complete bookkeeping tasks.
Let’s explore the differences a little more closely — specifically in terms of how each is used and their payment terms.
Use Cases
Remember what we said about bills typically requiring immediate payment while invoices typically provide a longer window for reimbursement? This is an important distinction, as it has a direct impact on the types of businesses that use an invoice vs bill.
Typically, bills are issued by company employees. A front desk representative at a hotel, for instance, would issue a bill upon guest checkout. The representative works for the hotel and is directly employed by them.
This isn’t the case for invoices, which are generally issued by independent contractors for goods or services provided to a client (whether as a business or an individual).
To understand why this is important, the difference between payroll vs 1099 has to be considered. Because independent contractors aren’t full-time or part-time employees, they’re not compensated via a company’s payroll process. This means the company is responsible for providing the independent contractor with a 1099 form for income tax purposes (as long as they paid the contractor more than $600 in a calendar year).
As you can see, whether or not a bill or invoice has been issued also impacts how to pay freelancers vs how to pay employees.
Invoices typically contain more details than bills, such as a complete breakdown of the various goods or services provided, tax information, delivery dates, and payment terms. Bills often do not require these details, as they’re typically used for different purposes.
Invoices include these details because different countries and states require them by law, and because they are kept on file for record-keeping or inventory reasons. Bills delivered to a customer by a business are filed as business revenue— which means they fall into an entirely different accounting process.
Here’s a general overview of information typically included on each:
Invoices:
Bills:
For an invoice, payment terms typically outline the specific conditions under which the recipient should make payment to the sender. These terms often include a due date, specifying when the payment must be received. Common invoice payment terms might offer a grace period after the due date before late fees or penalties apply. Invoices may also provide details about accepted payment methods, such as credit cards, bank transfers, or checks.
So, what is invoice processing? An invoice is processed by first reviewing and verifying its accuracy, then entering it into the accounting system, obtaining approval for payment, scheduling the payment. The invoice payment process ends with reconciling it with records for accurate financial tracking.
On the other hand, payment terms for a bill are often more straightforward. Bills usually indicate a fixed due date by which the recipient is expected to settle the amount owed. Unlike invoices, bills typically don't offer the same flexibility in terms of negotiating payment timelines. Bills are often associated with recurring or regular expenses, such as utilities or subscription services, and the payment terms for bills are less negotiable compared to invoices. Customers are generally expected to pay the full amount by the specified due date without room for negotiation or grace periods.
Processing a bill involves verifying its accuracy, recording it in accounts payable, obtaining approval, scheduling payment, and reconciling it for accurate financial tracking.
Ultimately, payment terms for an invoice tend to be more flexible, allowing negotiation and specifying payment methods while bills are often more rigid, with a fixed due date and fewer options for adjustments. When working with invoices, businesses need to track, manage, and follow up on payments more efficiently. There may be several weeks (or even months) between invoice processing steps when an invoice is issued and when payment is due.
Another notable difference between billing vs invoicing relates to how frequently they are issued. Bills are often delivered to the recipient each month, whereas invoices are typically delivered less frequently.
Cell phone bills are an excellent example. Each month, the customer receives access to cell phone services such as text messaging, high-speed wireless internet, and long-distance calling. Their chosen provider then sends a bill at the end of the month for these services plus any additional charges. The customer is then expected to settle their bill on a monthly basis.
Invoices, on the other hand, are typically delivered at less frequent intervals. A fitness trainer, for example, may offer a 3-month fitness program. The client may be expected to pay for their program upfront, settling the invoice before enrolling. Alternatively, the trainer may be willing to invoice the client twice — half up front and the remaining half upon completion of the program.
Remember, invoices take more time to process than bills, which is why they typically aren’t issued as frequently.
Paying invoices doesn’t have to be complicated. With chat-based contractor payroll from Roll, it’s easier than ever. Not only is onboarding and paying freelancers a breeze, you can also send early payments or payouts with just a few clicks. We even make life easier for your 1099 team, keeping their pay info right at their fingertips. It’s really that easy!
With powerful payroll and tax features, you can run payroll in under a minute. Sign up today and get ready to Roll!