What Is a Receipt of Payment? And How to Create One

When running a business, you would have to purchase goods or services from a supplier. Once the transaction is completed and you have paid the invoice, you should receive a document that proves your payment. That document is a receipt, which is also referred to as a receipt of payment or payment receipt. 

In this article, we'll explore the essential information about payment receipt, from what it is to why it is necessary and how to create one. We’ll also cover how to send receipts to your customers so that you get a clear understanding of how they work. 

What Is a Receipt of Payment?

A receipt is a document that the seller issues as proof of payment to the buyer or the customer. It confirms that the seller has received the amount due for the products or services sold, and it is normally provided after the transaction is finalized.

Historically, humans have been using receipts to record transactions since more than 5,000 years ago, according to The American Numismatic Society. Between Mesopotamian merchants and 21st-century online vendors, proof of payments was created in many forms. In the present day, businesses normally issue receipts on a sheet of paper or digitally.

Receipts can also be issued when deposits or partial payments are made toward goods or services.

Here’s an illustration of what a receipt of payment looks like:

Is a Receipt the Same as an Invoice?

A receipt is not the same as an invoice, and it cannot be used interchangeably. 

While a receipt confirms that the seller has received the payment, an invoice is a formal document that informs the customer of the outstanding amount to be paid. The primary purpose of an invoice is to collect payments.

The main difference between an invoice and a receipt is the timing and the purpose of issue:

• Invoice: Requests payment; issued before payment.
• Receipt: Confirms payment; issued after payment.

Both an invoice and a receipt are equally important documents for your business's accounting process. Understanding the differences between them enhances efficient financial and cash flow management.

Why Is a Receipt of Payment Important?

A receipt of payment is proof that there was a sales transaction between the seller and the buyer. It is important as it not only records the terms of sales but also provides evidence of the completion of the transaction.

As a seller, keeping a copy of a receipt for every transaction helps keep track of your income and expenses, allowing you to maintain an accurate financial record and inventory. As a buyer, receipts can also be used in accounting to calculate expenses.

Let's look at how a payment receipt is essential from the perspective of the business and the customer.

Why Payment Receipts are Important For Businesses

Keeping a record of all receipts of payment is important for accounting purposes in every business. Payment receipts can record all business purchases made throughout a given tax year and beyond.

When it's time to lodge your tax declaration, a record of receipts makes it easier to work out the total spent on business-type purchases while ensuring that upon request from the relevant tax authorities, you can provide proof of any claims you make towards tax deductions.

If you're being audited by the IRS in the US, you might be requested to provide records of receipts related to your business.

As a business, issuing a copy of a payment receipt provides transparency for the transaction, enhancing customer trust and making your business more professional.

Why Payment Receipts Are Important For Customers

A valid copy of a payment receipt is essential when requesting refunds, exchanges, or warranty claims based on terms of sales, as it is proof that you have purchased the product from a specific business.

Keeping a consistent record of invoices can also help you maintain tangible evidence in case of disputes about the payment. 

Payment receipts can also be useful for those who are budgeting and understanding how much they spend on average on goods and services.

Another significant use of a receipt is to maximize tax deductions. If you are a business owner, keeping track of all expenses for tax purposes is essential. When claiming deductions on your tax return, you must have documentation to support your claims, including receipts.

While bank or credit card statements can show the transaction amount, they are not considered adequate proof of a business expense.

It's crucial to retain the full sales receipt, which includes the date, the vendor's name, the items purchased, and the total amount paid. These details are necessary for your deduction to be allowed.

Is It Mandatory to Provide a Receipt?

Each country has different regulations concerning whether it is mandatory for businesses to provide a receipt. Providing proof of purchase directly after completing the payment is recommended in most places. Let's take a look at some examples:

For businesses, if a customer asks for a receipt, it is common practice to oblige to this request. If you are doing international trade, paying attention to the consumer laws about payment receipts of the country where your customers reside is also essential.

It is also worth noting that regulations about payment receipts vary between industries. For example, companies such as appliance stores with warranty terms as quality assurance should always provide a receipt, as the date of payment is typically the beginning of the warranty period. 

How to Create a Receipt of Payment

Having a receipt template ready to be issued is an excellent way to organize and streamline your financial management process. Here are 3 practical ways you could use to create a receipt for payment:

1. Receipt Book: Filling out a receipt book is a convenient way to create proof of purchase. A receipt book consists of pages of blank receipt templates, with carbon copy paper provided to facilitate making 2 copies at once. It usually can be bought at any office supplies store.
2. Online Template: Using a pre-made online payment receipt template can help save a lot of time. You can use software like Microsoft Word, which has a gallery of customizable templates, or template providers like PandaDoc or Template.net, which have a wide collection of paid and free receipt templates.
3. Make Your Own: If you cannot find a receipt template that suits your needs, you could also create a unique one yourself. This could be created using software or an online receipt generator for a professional look.

What Should Be Included in a Receipt of Payment?

No matter how you create your receipt, you should provide the details about the transaction in a receipt of payment.

These are the essential information:

• Heading: You should always state that this document is a payment receipt.
• Receipt Number: A unique receipt number allows you to identify the transaction.
• Business Details: State the name, address, and contact information of the seller clearly.
• Payment Date: Include the exact date that the payment was received.
• Amount paid: You should include an itemized list of products sold, the price per unit, and the total amount paid.
• Details of purchase(s): Provide a list of items sold with their details and quantity.
• Any Applicable Taxes, Fees, or Promotions: State the price addition or deduction factors such as VAT, service charges, or discounts.

Under some circumstances, you can also include these details:

• Invoice Number: The unique number of the invoice for which the payment was made.
• Customer Information: The customer's name, address, and contact information.
• Payment Method: Specify how the payment was made, for example, cash, credit card, or cheque.
• Payment Verification: You can sign the signature to verify the payment.

How Can You Provide Proof of Payment?

After issuing a receipt, the next step is to send it to your customer. For brick-and-mortar stores, a copy of the receipt could be handed to the customer immediately after the payment.

Here are some ways a business can send receipts to their customer.

Offline Proof of Payment

This is a common way to provide paper receipts for customers at the point of sale. It has been the primary method of issuing payment receipts for most of the 20th century.

Some examples of offline proof of payment include:

• Handwritten receipts: These are written receipts that include details like the date of transaction, business name, description of goods or services provided, and amount paid.
• Printed receipts: These receipts are generated by POS systems. They can be customized to include barcodes, QR codes, and other details.

Online Proof of Payment

For businesses in the ecommerce industry that mainly make virtual transactions, sending and storing online proof of payments is more efficient. This is particularly important as more consumers move towards online shopping and digital transactions.

For customers, digital receipts offer a convenient way to track purchases and manage personal finances. They can easily be stored and accessed on digital devices, reducing the need for physical storage and simplifying the process of tracking expenses over time.

Some examples of online proof of payment include:

• Email receipts: These are electronic records that are typically sent via email. They should include information similar to handwritten or printed receipts.
• Electronic Payment Confirmations: These are provided by payment systems like PayPal, Stripe, or Apple Pay. They can be used as receipts and include details like transaction date and time, the amount paid, and payment method.
• Mobile receipts: Some mobile apps or web portal allows you to scan, share, and store receipts, with features like purchase tracking, transaction history, and saving receipts for future reference.

Bottom Line

A receipt of payment is an essential document that provides proof of a completed transaction. For both the business and the customer, keeping receipts is necessary to accurately keep track of incomes and expenses for financial management and tax purposes. It is also a tangible sales record that is usually required when processing refunds or warranty claims.