What Is An Invoice Used For?

An invoice, bill or tab is a commercial document issued by a seller to a buyer, relating to a sale transaction and indicating the products, quantities, and agreed prices for products or services the seller had provided the buyer.


Payment terms are usually stated on the invoice. These may specify that the buyer has a maximum number of days in which to pay and is sometimes offered a discount if paid before the due date. The buyer could have already paid for the products or services listed on the invoice. To avoid confusion, and consequent unnecessary communications from buyer to seller, some sellers clearly state in large and/or capital letters on an invoice whether it has already been paid.

From the point of view of a seller, an invoice is a sales invoice. From the point of view of a buyer, an invoice is a purchase invoice. The document indicates the buyer and seller, but the term invoice indicates money is owed or owing.

In countries where wire transfer is the preferred method of settling debts, the printed bill will contain the bank account number of the creditor and usually a reference code to be passed along the transaction identifying the payer.

The US Defense Logistics Agency requires an employer identification number on invoices.

The European Union requires a VAT (value added tax) identification number for official VAT invoices, which all VAT-registered businesses are required to issue to their customers. In the UK, this number may be omitted on invoices if the words “this is not a VAT invoice” are present on the invoice. Such an invoice is called a pro-forma invoice, and is not an adequate substitute for a full VAT invoice for VAT-registered customers.

In Canada, the registration number for GST purposes must be furnished for all supplies over $30 made by a registered supplier in order to claim input tax credits.

Recommendations about invoices used in international trade are also provided by the UNECE Committee on Trade, which involves a more detailed description of the logistics aspect of merchandise and therefore may be convenient for international logistics and customs procedures.

Within the European Union Value Added Tax directive, Article 226 is a concise definition of invoices within the union member states.

Without prejudice to the particular provisions laid down in this Directive, only the following details are required for VAT purposes on invoices issued pursuant to Articles 220 and 221:

Article 226b of the EU VAT Directive is a concise definition of receipts within the union member states.

As regards simplified invoices issued pursuant to Article 220a and Article 221(1) and (2), Member States shall require at least the following details:

They may not require details on invoices other than those referred to in Articles 226, 227 and 230.

Details about the Australian Tax Office (ATO) requirements for a tax invoice can be found on their website.

For all GST purposes, a seller must issue a tax invoice to the buyer regardless the sale being in cash or credit. Hence, a tax invoice in Australia serves as an invoice as well as a receipt in the conventional sense. The words ‘paid’ or ‘payable’ will differentiate meaning. The tax invoice must contain seven facts as per the GST Tax Law.

There are different types of invoices:

Some invoices are no longer paper-based, but rather transmitted electronically over the Internet. It is still common for electronic remittance or invoicing to be printed in order to maintain paper records. Standards for electronic invoicing vary widely from country to country. Electronic Data Interchange (EDI) standards such as the United Nation’s EDIFACT standard include message encoding guidelines for electronic invoices. The EDIFACT is followed up in the UN/CEFACT ebXML syntax cross industry invoice.

The United Nations standard for electronic invoices (“INVOIC”) includes standard codes for transmitting header information (common to the entire invoice) and codes for transmitting details for each of the line items (products or services). The “INVOIC” standard can also be used to transmit credit and debit memos.

In the European Union legislation was passed in 2010 in the form of directive 2010/45/EU to facilitate the growth of Electronic Invoicing across all its member states. This legislation caters for varying VAT and inter-country invoicing requirements within the EU, in addition to legislating for the authenticity and integrity of invoices being sent electronically. It is estimated that in 2011 alone roughly 5 million EU businesses will have sent Electronic Invoices.

The XML message format for electronic invoices has been used since the inception of XML in 1998. Open Application Group Integration Specification (OAGIS) has included an invoice since 2001. The Open Applications Group (OAGi) has a working relationship with UN/CEFACT where OAGi and its members participate in defining many of the Technology and Methodology specifications. OAGi also includes support for these Technology and Methodology specifications within OAGIS.

There are two XML-based standards currently being developed. One is the cross industry invoice under development by the United Nations standards body UN/CEFACT and the other is Universal Business Language (UBL) which is issued by Organization for the Advancement of Structured Information Standards (OASIS). Implementations of invoices based on UBL are common, most importantly in the public sector in Denmark as it was the first country where the use of UBL was mandated by law for all invoices in the public sector. Further implementations are underway in the Scandinavian countries as result of the North European Subset project. Implementations are also underway in Italy, Spain, and the Netherlands (UBL 2.0) and with the European Commission itself.

The NES work has been transferred to European Committee for Standardization (CEN), the standards body of the European Union), workshop CEN/BII, for public procurement in Europe. The result of that work is a precondition for PEPPOL (pan-European pilots for public procurement), financed by the European Commission. There UBL procurement documents will be implemented in cross-border pilots between European countries.

An agreement was made between UBL and UN/CEFACT for convergence of the two XML messages standards with the objective of merging the two standards into one before end of 2009, including the provision of an upgrade path for implementations started in either standard.

ISDOC is a standard that was developed in the Czech Republic as a universal format for electronic invoices. On 16 October 2008, 14 companies and the Czech government signed a declaration to use this format within one year in their products.

Organizations purchasing goods and services usually have a process in place for approving payment of invoices based on an employee’s confirmation that the goods or services have been received.

Typically, when paying an invoice, a remittance advice will be sent to the supplier to inform them their invoice has been paid.

Invoices are different from receipts. Both invoices and receipts are ways of tracking purchases of goods and services. In general the content of the invoices can be similar to that of receipts including tracking the amount of the sale, calculating sales tax owed and calculating any discounts applied to the purchase. Invoices differ from receipts in that invoices serve to notify customers of payments owed, whereas receipts serve as proof of completed payment.

Posted in Accounting and tagged .