When businesses sell goods or services to other businesses, they most often provide short-term credit to their customer (the purchaser) i.e. take the goods now but pay at the end of the month. In such circumstances, the invoice, when processed through the accounts system, enables the seller to have a record of how much the seller owes them. Equally, the purchaser will also process invoices through their accounts system and will enable the purchaser to know how much they must pay their suppliers at the end of the month.

The fact that both sellers and purchasers process invoices through their accounting systems gives rise to the need for both parties to reconcile the amounts of money owing/owed. You can imagine that invoices may sometimes be lost or are incorrectly entered in the accounts system and therefore there is always a need for both seller and purchaser to make checks. The key document in this checking process is the Statement, which is sent by businesses to their customers at the end of the month.

If the purchaser agrees with the monthly Statement they will pay the amount requested by the statement.

The other reason why invoices are very important is that businesses that are registered for the Goods and Services Tax (GST), can only claim credits on taxable inputs into their business when they have a Tax Invoice. A "taxable input" is the Tax Office's way of saying taxable deductible expense.

It is for this reason that invoices have the words "Tax Invoice" instead of just "Invoice" since the new tax system was introduced on 1 July 2000 in Australia.

Go to pages 17 and 18 of the "Business Activity Statement: Instructions" to find out what the tax office rules are pertaining to Tax Invoices.