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.
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.
Is an invoice a contract?
No, an invoice is not a contract.
An invoice is a request for payment. It is a one-sided document that itemizes and records a transaction between a buyer and a seller.
As opposed to a contract, which is a legally binding agreement between parties where one fulfils an obligation to the other in return for consideration.
What are the differences between an invoice and a contract?
The primary difference between a contract and an invoice is that a contract requires two people to enter an agreement. Usually, one party sets out the terms of the agreement and the other accepts.
This leads us on to another key point of difference, signing. As an invoice is solely a record of a transaction and not an agreement, there is no requirement for it to be signed for it to be valid. In contrast, a contract is invalid without a valid wet signature or an eSignature.
In contrast, an invoice is one-sided and created by one party to request payment for goods or services. This makes it a legally enforceable document, but not a legal document.
This also works when you flip the coin, a contract cannot count as an invoice. It can stipulate that paying an invoice is a contractual obligation, but it cannot be an invoice itself. That said, a contract is not necessary if you want to issue somebody with an invoice.
Automate your invoices and contracts with Juro
Despite their differences, invoices and contracts are key to running a successful business and should be looked after.
Automating this process, using Juro, can help ensure your contracting procedure is streamlined.
With Juro you can:
Automate invoices using our integrations with Xero and Quickbooks. Using a contract management tool, such as Juro makes it possible to automate and manage contracts and invoices, streamlining this process.
Sign contracts electronically. Juro incorporates native electronic signing capabilities, making the signing process faster and more convenient. Parties can add that all important legally binding signature to any contract in seconds.
Juro simplifies the entire contract workflow, enabling businesses to automate up to 75 per cent of routine tasks and agree contracts up to ten times faster with powerful AI.
Fill out the form below to book a personalized demo and find out more.
No, an invoice is not a contract. An invoice is a request for payment. It is a one-sided document that itemizes and records a transaction between a buyer and a seller. As opposed to a contract, which is a legally binding agreement between parties where one fulfils an obligation to the other in return for consideration.
An invoice is not a legally binding agreement—but it does serve as a record of a transaction. It's evidence a product was delivered or a service was rendered and an amount is due in return.
Do invoices hold up in court? No, an invoice will not usually hold up in court. An invoice is simply a request for payment, but it's not a legal document and therefore not legally binding.
Paying an invoice may be a contractual obligation. This would be the case if you and your client entered into a contract that included payment clauses. However, you don't need to have a contract to issue an invoice.
Without a signature, invoices aren't legal documents — they're just a list of products and services sent to a customer to request payment. And in most cases, customers will pay unsigned invoices without any issues.
Invoice fraud occurs when someone purposely invoices for more than the correct amount, causing companies to overpay or even pay someone who never offered them goods or services in the first place.
Invoices. Technically, you can cancel an invoice after it's been issued but before it's been paid, however it's not best practice and should be avoided, if possible. Prior to your invoices being paid, you have the flexibility to cancel or edit them, allowing for adjustments and corrections to be quickly made.
Send an email notice to the vendor stating the invoice in question is in dispute and being rejected for the following reason(s); be clear in your explanation of the dispute reason. Include the invoice as an attachment to the email. Retain both the email communication and the invoice until the dispute has been resolved.
At this point, you may be wondering if you should sue them for the unpaid invoices. Although suing a customer for non-payment of services is absolutely an option once the invoice has gone unpaid long enough, it isn't something that should be done often or in most situations.
The general rule is 30 days from the invoice date. However, you can discuss this with your customer and either make it shorter or longer than 30 days. Regardless of what you agree upon, the payment terms and the due date should be clearly stated on the invoice.
Even as a private individual, creating an invoice is no problem. If you were to sell your car, or charge for a non-professional service, the person making a purchase from you may require a personal invoice. Many companies also require invoices when purchasing a product or service from a private individual.
Is an invoice a legal document? In and of itself, an invoice is not a legally binding agreement. If an invoice on its own was a legally binding document, then vendors could create bogus invoices and then force their clients to pay them. If both sides do not agree to the invoice, then it is not legally binding.
Once you provide a good and service in exchange for a fee, you can consider yourself a sole proprietor, a business owner, and can create a personal invoice. This article also includes information about: What Should Your First Invoice Include? Quick Tips for Smooth Invoicing.
California: "If the involvement of the notary is limited to completing a certificate of acknowledgment or a jurat, there should not be a problem. However, if the notary is purporting to certify to the accuracy of the information contained in the invoice, it is contrary to California law."
The short answer is that both the buyer and seller should retain the bill of sale for their records. This document protects everyone involved should any disagreements arise in the future. Typically, the buyer should keep the original and the seller should keep a copy.
An invoice is a time-stamped commercial document that itemizes and records a transaction between a buyer and a seller. If goods or services were purchased on credit, the invoice usually specifies the terms of the deal and provides information on the available payment methods.
The simplest and fastest form of legal action you can take is to file a claim in small claims court. Your case should be straightforward: You'll claim that the other side breached your written agreement by not paying you, and you want the judge to award judgment to you for the entire amount owed.
If the accuracy, completeness, or quality of goods or services billed on an invoice is in question, a dispute may be initiated with the vendor. Dispute is defined as any discrepancy showing something might not be true or accurate with the invoice or billing document.
Since invoices are not considered to be legal documents, it shouldn't come as a surprise to read they are not contracts either. That's because an invoice is a request for payment and does not legally bind the client to pay it. A contract, however, is the legally binding document that can be enforced in court if needed.
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