You are wrapping up a job for a new client. They ask, "Can you send me a quote?" You send it. Then they say, "Okay, send me the bill." You send an invoice. Finally, they pay and ask for "proof of payment." You send a receipt.

If you are new to business, this terminology can feel like a word salad. Invoice. Receipt. Quotation. Estimate. Purchase Order. Are they interchangeable? (Spoiler: No.)

Using the wrong document at the wrong time isn't just a semantic error; it can cause legal headaches, tax audit nightmares, and delayed payments. In fact, 42% of new business owners admit to confusing these documents in their first year.

This guide is your definitive dictionary and playbook. We will break down exactly what each document is, when to use it, and why it matters for your bottom line.

INVOICE The Demand for Payment

Definition: An invoice is a formal request for payment sent by a seller to a buyer after goods or services have been delivered (or in accordance with a contract), but usually before payment is received.

Purpose: It establishes an obligation to pay. It is a legal document that says, "I did the work; now you owe me money."

Key Characteristics:

• Timing: Sent after work is done (or at agreed milestones).
• Action Required: The client must pay.
• Accounting Impact: It creates an "Account Receivable" for you and an "Account Payable" for the client.

Must Include: Unique invoice number, date, your details, client details, line items, total amount, payment terms (e.g., Net 30), and payment methods.

RECEIPT The Proof of Payment

Definition: A receipt is a document acknowledging that payment has been received. It is issued after the transaction is complete.

Purpose: It proves that the debt has been settled. For the client, it is essential for tax deductions and expense reimbursement.

Key Characteristics:

• Timing: Sent immediately after payment is received.
• Action Required: None (it's for record-keeping).
• Accounting Impact: It closes the open invoice in your books.

Must Include: Date of payment, amount paid, payment method (e.g., Credit Card ending in 1234), and reference to the original invoice number.

QUOTATION The Offer

Definition: A quotation (or quote) is a formal offer to sell goods or services at a specific price. Unlike an estimate (which is a guess), a quote is often legally binding if accepted by the client.

Purpose: It sets the expectations before any work begins. It prevents "sticker shock" later on.

Key Characteristics:

• Timing: Sent before work begins.
• Action Required: The client must approve or sign it.
• Accounting Impact: None (no money has changed hands yet).

Must Include: Expiration date (e.g., "Valid for 30 days"), detailed scope of work, total price, and timeline.

Side-by-Side Comparison

Here is the cheat sheet you need:

Feature	Quotation	Invoice	Receipt
When Sent	Before work starts	After work is done	After payment is made
Purpose	To agree on price	To request payment	To prove payment
Legal Status	Offer to contract	Demand for debt	Proof of settlement
Accounting	None	Accounts Receivable	Cash / Revenue

The Document Lifecycle: A Real-World Example

Let's trace a typical project for a web designer, "Alice," working with a client, "Bob."

1. Step 1: The Quote. Bob asks for a website. Alice sends a Quotation for $2,000. Bob signs it. (Contract formed).
2. Step 2: The Deposit Invoice. Alice requires 50% upfront. She sends Invoice #001 for $1,000.
3. Step 3: The Deposit Receipt. Bob pays $1,000. Alice sends a Receipt for $1,000.
4. Step 4: The Work. Alice builds the site.
5. Step 5: The Final Invoice. Alice finishes. She sends Invoice #002 for the remaining $1,000.
6. Step 6: The Final Receipt. Bob pays. Alice sends a Receipt for the final $1,000.

If Alice skipped the Quote, Bob might dispute the price later. If she skipped the Receipt, Bob might claim he paid cash when he didn't.

Legal Implications

These aren't just administrative papers; they are evidence.

Tax Audits

The IRS (or your local tax authority) doesn't care about your feelings; they care about your documentation. An invoice proves you earned revenue. A receipt proves you incurred an expense. Without them, your deductions can be disallowed.

Disputes

If a client refuses to pay, your Quotation (signed) and your Invoice (sent) are your primary weapons in small claims court. They prove there was an agreement and a demand for payment.

Creating Each Document Type

You don't need three different software programs. A good invoicing platform like Invoicely handles all three.

• Convert Quote to Invoice: In Invoicely, you can create a quote, and when the client accepts it, click one button to convert it into an invoice. No re-typing.
• Auto-Send Receipts: You can configure the system to automatically email a receipt the moment a payment is recorded.

Digital vs. Paper: Which is Better?

In 2025, digital is the standard. Here is why:

• Searchability: Try finding a paper receipt from 3 years ago. Now try searching "Bob" in your software.
• Security: Paper burns, fades, and gets lost. Cloud backups are redundant and secure.
• Speed: Email delivery is instant. Snail mail adds 3-5 days to your payment cycle.

Legal Note: Digital invoices and receipts are legally valid in almost every jurisdiction, provided they are legible and immutable (like a PDF).

Common Scenarios Explained

"Can an invoice serve as a receipt?"

Only if it is stamped "PAID." Otherwise, no. An unpaid invoice is a liability; a paid invoice is an asset. They are different states of reality.

"What is a Proforma Invoice?"

This is a "draft" invoice sent before goods are shipped, often for customs purposes. It looks like an invoice but isn't a demand for payment yet. (See our full guide on Proforma Invoices).

"What is a Purchase Order (PO)?"

A PO is sent by the buyer to the seller to order goods. It is the reverse of a quote. If a client sends you a PO, you send them an Invoice referencing that PO number.

Frequently Asked Questions

Conclusion: Clarity is King

Business is built on trust, and trust is built on clarity. When you use the right documents—Quotes to set expectations, Invoices to request payment, and Receipts to confirm it—you build a professional reputation that clients respect.

Don't let terminology trip you up. With a tool like Invoicely, the entire lifecycle from Quote to Receipt is automated, ensuring you never send the wrong document again.