In the business world, where logistics are an essential part of the business, the understanding of some vital documents is important for smooth running. Two documents that are highly confusing but critical are the invoice and bill of lading. Both of them play important roles during transactions and shipping.
In this article about invoice vs bill of lading, we will discuss the differences and similarities between the two. Let’s start.
What is a bill of lading?
A bill of lading (BOL) is a key legal document issued by a carrier to a shipper. It includes important details like the type, amount/quantity and destination of the goods transported. It acts both as a receipt when the goods are handed over and as a contract between the shipper and carrier, ensuring everyone is on the same page.
In short, it’s the document that keeps the wheels of shipping turning smoothly.
BOL example
Suppose you own a furniture manufacturing business and you’re shipping a large order of custom-made chairs to a retailer in another state. You would issue a bill of lading when the goods are handed over to the carrier. This document may outline the number of chairs, their destination and the delivery terms.
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What is an invoice?
An invoice is a formal document issued by a seller to a buyer that outlines the details of a sale transaction. It typically includes information such as the goods or services provided, prices, invoice number and the total amount due. Invoices are used to request payment from the buyer and serve as a legal record of the transaction.
Invoice example
Imagine you run a software development company. You complete a custom website project for a client and now need to get paid. You would issue an invoice to the client, listing the services rendered, the number of hours worked, the hourly rate and any additional costs like domain registration and the total amount due.
This invoice serves both as a payment request and a record of the work completed. After all, time is money, and delays in invoicing can lead to cash flow problems.
Invoice vs bill of lading: the differences
While both an invoice and bill of lading are crucial documents in business transactions, especially in logistics and supply chain, they serve distinct purposes and involve different processes.
1. Who issues the document?
Invoice: There are different types of invoices and each type is issued by the seller or service provider to the buyer after the product has been provided. It’s a request for payment based on the terms agreed upon between both parties.
Bill of lading: The BOL document is issued by the carrier or shipping company to the shipper when the goods are handed over for transportation.
According to a report by UK National e-Invoicing Forum, it costs £13.98 to process a paper invoice and only £4.77 to process an e-invoice.
2. What parties are involved?
Invoice: It involves two parties: the seller and the buyer. The seller is the one who prepares the invoice and the buyer is the one to whom the invoice is sent.
Bill of lading: The three main parties are the shipper, who sends the goods; the carrier, who carries the goods; and the consignee, to whom the goods are sent.
3. Contents of each document?
Invoice: This document contains detailed information regarding the sale, including:
- Description of the goods/services.
- Quantity, unit price and total price.
- Payment terms and due dates.
- Invoice number and date.
- Applicable taxes.
Bill of lading: The BOL document includes:
- Description of the goods being shipped, their weight, dimensions and type.
- Origin and destination of the goods.
- Name of the carrier and consignee.
- Shipment terms and details of liability.
- Shipping instructions.
4. Purpose of each document?
Invoice: Primarily, the intention of an invoice is to demand payment and is a financial document of the transaction for both seller and buyer. It helps in maintaining the accounts receivable for the seller and is a legal obligation for the buyer to keep an account of purchased goods.
Invoices also become useful when the supplier needs invoice financing facilities.
Bill of lading: It’s a document of conveyance contract, a shipment receipt and a title document relative to the shipped goods. It serves as an instrument to guarantee the conveyed goods to be delivered according to the prescribed terms.
5. When are they issued?
Invoice: Normally issued after the goods or services are delivered and the payment is expected. Sometimes, invoices may be issued at periodic intervals for continuing services.
Bill of lading: Issued at the time the goods are transferred over to the carrier for transportation before the shipment occurs. It remains with the goods till they get delivered.
Summary: Invoice vs bill of lading
| Criteria | Invoice | Bill of lading |
|---|---|---|
|
Who issues the document? |
Issued by the seller.
|
Issued by the carrier or shipping company. |
|
What parties are involved? |
The seller and the buyer. |
The shipper, carrier, and consignee. |
|
Contents of the document |
Description of goods, quantity, price, payment terms, invoice number, and taxes. |
Goods description, weight, dimensions, origin, destination, carrier, consignee, and liability. |
|
Purpose of the document |
Used to request payment and maintain financial records. |
Serves as a conveyance contract and shipment receipt.
|
|
When are they issued? |
Issued after goods/services are delivered when payment is expected. |
Issued at the time goods are handed over for transportation, before shipment occurs. |
Invoice vs bill of lading: the similarities
There are some similarities between an invoice and a bill of lading.
- Documentation of a transaction: Both documents serve as official documents recording the details of a business transaction. They confirm the exchange of products or services between the buyer and seller.
- Reference to the goods being sold: Both documents describe the goods involved in the transaction.
- Essential for payment: Although in different ways, both documents are crucial in the payment process. The invoice is the direct request for payment while the BOL document might be required by the buyer before payment is released. Invoices can also be used to get immediate cash by selling them at a discount.
- Key for record keeping: Both documents are important for record-keeping and accounting purposes.
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FAQs
A bill of lading is a legal document that serves as a contract for the shipment and delivery of goods, while a packing list details the content of the shipment, including product descriptions and quantities. The BOL document is also used for transport, whereas the packing list is primarily for inventory management.
Yes, a BOL document acts as an official receipt issued by the carrier to the shipper. It confirms that the carrier has received the goods in good condition for shipment and outlines the conditions under which the goods will be transported e.g. with a cellophane paper, loaded on a pickup truck, etc.
No, the bill of lading is not a proof of payment. It’s a document that confirms the receipt and transportation of goods. Payment terms are usually addressed in the invoice or other financial agreements.
