Invoices and contracts are incredibly important in the day-to-day running of any business so it's crucial to understand the difference between the two.
What are they, which one are you supposed to use and when and what makes them different? Let’s find out.
What is an invoice?
An invoice is used to request a payment from a client or customer for a given good or service.
Typically, an invoice lays out an itemised list of products or services you have supplied to your client. It will then list the charges associated with each of these services next to them and a total for all items combined at the bottom.
Though there is no set timeframe for you to send an invoice, there will be a set date by which you expect to receive payment. An invoice may also include information on accepted payment methods, card, cheque or bank transfer.
What format is an invoice?
An invoice could be formatted as:
- a paper receipt
- a debit note
- a sales invoice
- an electronic record of sale or
- a bill of sale
Nowadays, computer-generated invoices are increasingly common. They are favoured due to their ease, as they can be printed on demand or sent by email to each party.
Automating records allow those creating an invoice to search and sort transactions by number, date, goods or client. This ultimately leads to a smoother invoice creation process.
Are invoices legally binding?
Technically, no, invoices alone are not legally binding.
Invoices do not equal a legally binding agreement between the business and its client, nor are they considered a legal document. An invoice leaves too much room for manipulation to serve as a legal document.
That said, if an invoice is accompanied by an official contract stating the terms and agreements of the sale or payment, then it could be considered legally binding.
What is a contract?
A contract is a legally binding agreement between two or more parties. When signed, this agreement creates a promise that certain rights and obligations will be fulfilled by each party. Put simply, a promise is at the centre of every single contract.
There are a variety of elements of a contract that make it, unlike an invoice, legally enforceable. It’s also worth noting that an agreement does not equal a contract either, which we explore in this explainer.
A contract becomes legally binding the moment all of the contract elements have been met. But before this moment, it is neither enforceable or legally valid.
A common misconception of a contract is that it has to be in writing to be binding. This is not true, in fact it just needs to include the basic elements of a contract to be valid. In fact, verbal contracts can be just as defensible as written ones.
All of this and more can be found in our comprehensive guide to the purpose of a contract.
Need help getting started? Check out our free contract templates ready to use today in Juro.