Understanding Invoices and Statements: A Comprehensive Guide

Can’t spot the difference between an invoicing and a statement?

Knowing both documents is essential for effective accounting.

Thus, not knowing the difference, you might make an accounting mistake that costs you money, time, and above all, your reputation as a business owner.

But, as both the documents have differences and similarities too, no one can blame you for not knowing.

You are not alone.

Therefore, we have compiled a statement vs invoice comparison to tell apart the main differences and similarities between the two.

So, without any further ado, let’s get started.

What’s An Invoice?

An invoice is a document to request payment. It is generated for every trade. It is generally issued at the end of the trade by the seller to the buyer.

The invoice serves the purpose of initiating the payments from the buyer.

A typical invoice includes the details of the goods or services provided in the specific transaction. This consists of detailed information about all the goods and services rendered, the date of the trade, the payment due date, and other essential payment instructions.

When is it Issued?

Generally, it is said that an invoice is issued to the customer at the end of the business. Which is just an assumption and not correct in every case.

Since a sales invoice is a payment request, a business owner issues invoices whenever they need the payment.

Now this depends on business to business and on every business-customer contract too.

Whatever may be the case, the time of invoicing is priorly agreed upon in the contract at the time of closing the deal.

So, most businesses do invoice the customer at the end of the trade, but some businesses especially in the service sector, such as contractors, consulting agencies, and freelancers might issue invoices before the service period for collection of an advance, deposit, or partial payment.

What Does An Invoice Look Like?

From customer names to their contacts, an invoice has all the necessary details that will help you verify the invoice effortlessly.

So, starting from the beginning, it has:

• invoice as the title
• date of invoicing
• invoice number
• to (details of the customer)
• from (details of the seller)
• shipping address
• line items
• discounts and taxes (if any)
• total accounts payable
• due date
• payment instructions
• terms and conditions

Is that too much to remember?

Don’t worry, we have a ready-made invoice template for you to just download and fill in.

What’s A Statement?

A statement establishes the credits and debits made by a customer in his/her account with the business in a particular period.

In simple words:

A statement is a record of all the individual sales transactions that occurred between the customer and the vendor.

When a customer has a long relationship with a business, instead of the sales tax receipt pile, they can save this document as proof of all the invoice payments made in a given period.

Moreover, the statement also records the funds that the customer owes and paybacks by the vendor to the customer.

For example, a bank account summary is nothing but a financial statement between the customer and the bank. And similarly a credit card statement.

When is it issued?

The statement is issued in three scenarios, which are:

• At previously set intervals
• When the customer demands it
• When the authorities want to audit the account

Let’s talk about these scenarios in a bit more detail.

1. At previously set intervals

   Generally, when a customer and the seller have a long-term trade relationship, the statements are generated at time intervals. These fixed interval statements include all the items refunded and paid amount, which occurred between the period of the last statement and the present date.

   The time period for generating statements is called the statement period. This statement period is commonly a month.

   However, it can be a week or a day based on the nature and number of transactions occurring regularly.

2. When the customer demands it

   A statement might also be issued at a given point in time for a given period when demanded by the customer.

   The customer is right to demand a statement at any time to know the existing account status. Also, the statement will reflect the current amount in the customer’s account and revise all the transactions.

3. When the authorities want to audit the account

   This is the rarest occasion and businesses would wish it never came. The IRS might ask you for the statement of a particular account.

   This is most commonly in three cases

   • They suspected unlawful transactions
   • Your account has been reported
   • For random audits

What Does a Statement Look Like?

A statement is a summary of the paid and unpaid amounts in a given time. Therefore, it contains:

• statement as the title
• statement date
• statement time
• statement number
• to (customer contact details)
• from (seller contact details)
• itemized transactions
• account balance

That’s all!

We know it’s easier said than done. Many small business owners, especially new beginners might find this complex. They have greater chances of making mistakes.

Thus, we have come up with a statement memo that you can edit easily. Just fill in your details here and you will be ready with a customized statement to share promptly.

Statement vs Invoice: Key Differences

We have described an invoice and a statement individually. That must have cleared a lot of smog for you.

Still, for better understanding, let’s see invoices and statements side by side and compare them both to highlight the several key differences.

Shall we?

Criteria for Differences	Statement	Invoice
What’s the Purpose?	To determine the account balance and history of transactions	To request payment
What does it signify?	All the transactions during the statement period	Trade between the seller and the buyer
What’s its role?	It just notifies the account holder	It obliges an action (i.e. to make the payment)
What’s the intent?	To notify and update the account holder of all the transactions	To collect payment
What’s the time of issuing?	Periodically	When the seller needs payment for a specific period
What amounts does it show?	Certain amounts that already been paid	The entire amount that needs to be paid
What details does it have?	Statement number Detailed transaction history Statement duration Credit terms	Invoice number A detailed description of the purchase order Current amount to pay Payment terms Billing period
What are the consequences of neglecting it?	Unawareness	Unpaid or past invoices listed might bring a lawsuit The seller might face a negative cash flow because of recent invoices due.
How does it benefit?	Generates transaction log Helps in budgeting Accounts tallying Sales reports	Registers the payment request Helps in getting paid faster Records revenue Tracks inventory outflow

Alright!

Now that we have a clear idea about several key differences between invoices and statements, let’s discuss how both documents are similar.

Similarities Between a Statement and Invoice

Although the statements and invoices are both different documents, they have a few similarities too.

Knowing these similarities would make you less confused and understand more details of the concept.

So, are you eager to know?

Here we go.

Criteria for Similarities	How are they Similar?
What are they?	Legally binding documents
Who sends them?	Sellers send statements and invoices
What do they highlight the most?	due balance

Other than these similarities, if an invoice is issued during a statement time of a statement, the statement shows the same transaction as the invoice as an entry.

Conclusion

Invoices and statements are different documents but with a few similarities, most small businesses that are new to accounting get confused between the two. When customers receive an invoice means that the service provider has completed the work and expecting payment. Whereas, the statement will be available periodically showing the customer’s overall transaction activities.

We hope as we have defined both documents in this blog separately and compared them in detail, this will help you differentiate them easily and use them correctly.

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