What is an open invoice?
What is an open invoice?
Accounting and invoicing are areas that include a lot of technical jargon, but it's also a topic you need to understand as a business to function properly. In this article, we’ll look at open invoices, and decode the jargon surrounding them so you can understand exactly what they mean for your business.
When a company sells a product or service, it may issue an invoice to the customer which shows the amount owed and the details of the goods or services provided. The invoice usually includes:
- a payment deadline date
- a preferred payment method
- information on the legal entities involved.
Check out our guide on how to write an invoice.
An open invoice refers to an invoice that has been sent to the person or business that owes the money (the payor) but has not yet been paid to the party owed the money (the payee).
How does an open invoice work?
You can send an open invoice to your customers either before or upon delivery of any goods or services that you provide to them. This is usually processed and sent by an accountant or finance manager - unless you’re a small business owner that wears lots of hats.
When sending an open invoice, make sure that you review the price and describe the products or services that you have given. Your open invoice should include:
- a unique invoice number
- your company name and address
- the amount to be paid
- the date you provided goods or services
- payment terms
- customer name and address
You’ll also want to include your preferred method of payment - remember, there are lots of payment methods for businesses.
It’s then time to send the open invoice to your customer (the payor). They may have some questions regarding payment options, the outstanding balance, or the due date - when this happens, It’s important to be flexible but firm. Once they’re happy, in most cases, your customer will process the payment and your open invoice is then no longer considered an active document once paid.
The different types of open invoices
The scope of an open invoice can vary considerably. Let’s say that a specialist design business has created a bespoke exhibition stand for one of its clients - Jane’s Bakery. When they’ve finished designing the stand, they will email across a digital open invoice to Jane’s Bakery. The bakery will then file the invoice and schedule a payment through their online accounting software.
Another example of an open invoice would be a professional window cleaner who is cleaning the windows of a house when the homeowner is not present. The window cleaner puts a paper copy of an open invoice through their front door and returns later when the homeowner is present to receive payment from them.
Here’s a list outlining some different types of open invoices:
- pending online payments — where payment through an online banking system is being processed but has not yet been finalised
- pending offline payments — where payment is expected through offline means (i.e. by cheque or cash) but has not yet switched hands
- bills — where a bill has been issued but is still outstanding
- failed payments — there are circumstances in which an online payment may not complete or a cheque bounces. In these cases, despite the payor making an attempt, the payee has not received payment (in full or part).
How to manage open invoices for your business
When possible, we recommend managing your invoices digitally. Luckily there are many different types of open invoice software that you can use to collect payments effectively. This allows you to keep everything in one place and easily find customers that have outstanding payments.
Sending invoices digitally also gives you more flexibility when it comes to payment terms. For example, using iwocaPay allows your customers to either pay upfront or spread their payment across three monthly instalments (subject to approval). Whichever option they choose, you’ll be paid in full upfront.
Our integration with Xero means that you can send branded invoices that are all in one place and easy for you to manage, cutting admin time and giving you time back to run and grow your business!
How to get your open invoices paid on time
Getting invoices paid on time - and in full - is an ongoing battle for many small businesses. While it’s important to build great working relationships with your customers, you still have no control over when they’ll pay you what’s owed. This is where tools like iwocaPay help you get paid on time. Your customers get flexible payment terms while you don’t have to manage the credit risk or worry about cash flow.
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