Purchase receipts are an integral part of the buying and selling process.
They formally confirm a transaction between a buyer and seller, and you’re likely to use them in areas as diverse as retail sales, employee reimbursement requests, and procurement management.
It only makes sense, then, that you’d have a firm grasp on what a purchase receipt is, how they work, and what should be included in them.
In this article, we’re going to discuss exactly that.
What is proof of purchase?
A proof of purchase is a document that confirms a transaction between a buyer and a seller, serving as evidence that the customer has indeed purchased the product or service in question.
The majority of the time, the proof of purchase will be a receipt, something which we’ll discuss in more detail shortly.
However, there are a few other common documents and records that can be used as proof of purchase. These include:
- Invoices — more commonly used in B2B transactions.
- Order confirmation emails — commonly received after making an online purchase.
- Bank statements — in the event that an invoice or receipt is unavailable.
- Warranty cards — for certain products, such as big box items like dryers and washing machines.
What is a purchase receipt?
A purchase receipt is the most common proof of purchase. It's a document presented to the buyer by the seller at the point of sale to confirm that the transaction in question has been completed.
A purchase receipt typically includes standard details such as the date of purchase, the items or services bought, and the payment method.
Unlike other financial documents such as the invoice, the purchase receipt is only issued after payment has been made and received. This means it not only serves as proof that the goods or services were purchased, but that they have also been paid for.
Two common financial documents that get confused with purchase receipts but that are actually very different include:
- Purchase order. This is a document sent from the buyer to the seller to formally request the products or services in question. It comes before the transaction is made.
- Invoice. This is a document sent from the buyer to the seller to request payment. It comes after the purchase order but before payment is made, meaning it is sent before the purchase receipt.
As part of the purchasing process, the purchase receipt is crucial because it:
- Serves as evidence that the buyer has paid for goods, important for processing customer returns or employee reimbursement.
- Allows businesses to track sales and maintain accurate records for inventory management.
- Ensure that the organization maintains compliance with tax legislation, which often requires that payment receipts be kept for a minimum amount of time.
How does a proof of purchase receipt support proof of purchase?
There are seven key ways in which a purchase receipt supports proof of purchase:
- Confirmation of payment. A receipt shows that a payment has been made, including the total amount and the payment method used.
- Itemized details. A receipt includes a breakdown of the items or services purchased, acting as proof of what was actually bought and eliminating ambiguity.
- Date and time stamps. Receipts include the specific date and often the exact time of purchase, which can be important for tax reporting purposes as well as ensuring that the product was purchased within the warranty period.
- Seller information. Most receipts include the name, address, and contact details of the seller, which is helpful in case you need to lodge a warranty claim.
- Tax and legal compliance. Receipts typically show applicable taxes, helping both buyers and sellers ensure tax compliance when making deductions.
- Returns, exchanges, and warranty claims. A purchase receipt is the ideal proof of purchase when making a return or exchange, helping the seller ensure the item is still within the relevant time period and that a genuine purchase has been made.
- Unique transaction ID. Many receipts include a unique transaction number which can be used to trace the sale in the seller’s records, further validating the authenticity of the transaction.
Why are proof of purchase receipts important for businesses?
So, why do businesses need to pay attention to proof of purchase receipts in the first place?
Here are four ways that purchase receipts are important to business operations.
1. Inventory tracking
Since each purchase receipt reflects an item sold, it's a good way for businesses to be able to keep track of their inventory in real time.
As products are sold, the inventory count is adjusted, so there is always an up-to-date record of stock levels.
This also helps businesses forecast demand and identify trends, so that they can manage stock replenishment accurately and make sure they don’t understock or overstock for the future.
2. Auditing and financial transparency
Receipts serve as concrete, time-stamped records of each sale. They create a transparent paper trail for all transactions, something that is vital in both internal and external audits, ensuring that no revenue has been understated or overstated.
There is also a tax compliance element. In many jurisdictions, it's a legal requirement for a business to hold onto a record of its sales receipts for tax and accounting purposes.
Moreover, a well-maintained system of issuing receipts helps businesses prevent internal fraud, as it prevents sales staff from falsifying sales or pocketing money from transactions.
3. Preventing financial discrepancies
Purchase receipts act as a reference point for resolving discrepancies and for reconciling cash registers and card payments with accounting records to prevent discrepancies from errors popping up.
They’re also a great formal document for handling customer disputes, such as claims of overcharging or incorrect product delivery, as they provide a record of what was actually sold and paid for.
4. Legal and warranty issues
In the event of a legal dispute, particularly around warranty claims, misrepresentation, or defective provides, receipts provide the necessary documentation to provide the date of the sale and any stated conditions, critical in defending the company’s interests.
They’ll also prove helpful in making your own warranty claims for office supplies like furniture and electronics, providing a proof of purchase for after-sales service.
What should be included on a purchase receipt?
A good purchase receipt should include the following data:
- Seller information such as the business name, address, and tax ID number.
- Transaction details such as the date, time, and location of the transaction.
- An itemized list of what was purchased including descriptions, quantities, and unit prices.
- Taxes and discounts that were applied to the sale.
- The total amount due and the final total paid
- Payment information such as whether the invoice was paid via card or cash
- The seller’s return or refund policy, in cases where this is applicable.
Reimbursement if the proof of purchase receipt is missing
What happens if an employee wishes to process an expense reimbursement, or a customer wishes to return a product, but they don’t have proof of purchase receipt?
While every business should have their own specific policies around this, here are a few guidelines:
- An alternative proof of purchase such as bank or credit card statements, an email confirmation, or a product serial number, where appropriate.
- Some companies have a middle-ground policy, where a customer without a receipt can return the product for store credit but not a full refund.
- In the case of an employee expenses claim, some businesses require that a missing receipt affidavit be submitted as a way of protecting against fraud.
Best practices for managing purchase receipts
Before we sign off, let’s share some best practices for managing purchase receipts in various business contexts.
Go digital
Encourage the use of digital receipts instead of paper receipts, or at least scan and digitize physical receipts, making storage and recall much easier for all parties involved.
Use receipt management software
Implement a centralized repository for managing receipts that also integrates with accounting software like Xero and QuickBooks, and gives you access to automation tools to track, categorize, and analyze spending.
Standardize storage procedures
If you’re not using a dedicated receipt management solution, consider setting up organized folders for different expense categories and enforcing naming conventions digitized files to make your manual repository more searchable.
While you’re at it, don’t forget to implement a regular backup and archiving practice.
Don’t forget about compliance
Record-keeping accuracy is not only important for staying aligned with financial reporting standards like GAAP (Generally Accepted Accounting Principles), but it also keeps you prepared for painless audits and may even be a legal requirement in the country in which your business is registered.
Make sure you read up on your requirements and ensure that your receipt storage practice is compliant.
Link receipts to accounting entries
Many modern accounting software solutions allow you to attach digital receipts directly to transactions, making auditing much smoother.
This practice also allows you to more easily reconcile receipts with bank statements, credit card statements, and accounting records reducing the likelihood of financial discrepancies.
Set policies for expense reimbursements
Establishing and distributing clear guidelines and policies for how employees can submit receipts for business expenses will streamline the reimbursement process, reduce errors and delays, and help protect your organization against fraud.
Share your expectations on:
- What an acceptable proof of purchase is
- When prior approval should be obtained
- How missing receipts will be handled
- What deadlines you have for submission
Master business spend management
Getting on top of proof of purchase receipts is an important first step in gaining control over business spending.
It will help you improve the accuracy of your financial records, prevent fraud, and maintain compliance.
If you’re really serious about mastering spend management, you should consider investing in a dedicated solution like BILL Spend & Expense, which can help you:
- Streamline employee reimbursements
- Track spending by category in real time
- Better understand spending behaviors
