What Is an Open Invoice?

Timely invoicing is an essential component of doing business, particularly if you’re a small business owner or freelancer with limited cash flow. What does it mean when an invoice is said to be “open” or “closed?” Find out more about the open invoice definition below to help you keep customer payments on track.

Open invoice explained

Accounting is filled with technical terms, but fortunately the open invoice definition is very easy to understand. When an invoice is said to be “open” this simply means that it has been sent to the customer, but not yet paid. To understand this a bit more, it’s helpful to go through a quick rundown of how invoicing works.

When your business sells a product or service, you issue an invoice to the client showing the amount owed as well as details of the services provided. This statement should also give all relevant payment information, including the deadline date and preferred payment method. At this point in the invoicing process, the invoice is open because it’s been sent, but not yet paid.

How do open invoices work?

While the scenario above describes a typical timeframe for sending an invoice, you can actually send open invoices to customers before or after goods and services have been provided. Once the invoice is received, it will be sent to the customer’s accounts payable department for processing. To expedite this processing, open invoices should include all relevant information for payment:

• Unique invoice number

• Company name and address

• Customer’s name and address

• Goods or services provided

• The date that goods were provided

• The cost of each item

• The total amount to be paid

• Payment due date and methods

There are no hard and fast rules when it comes to open invoice payment methods. Some companies will provide banking details for an easy transfer, while others will include an embedded link that redirects the customer to an online payment form.

Until the customer processes and pays using the open invoice payment method provided, the invoice will be considered open. It’s important to be sure that all details are correct before you send your invoice to the customer, because if it doesn’t match their own records payment could be delayed.

What happens when an open invoice is paid?

Once you’ve received payment, it’s marked as paid in your accounting books and you can close the invoice. If the payment was received after your due date, you may or may not charge a late fee. The invoice is still closed at this point, but you can send a separate invoice either for the fee on its own or tack the charge onto the customer’s next invoice. This will depend on how frequently you do business with this customer.

How does open invoice software work?

For greater efficiency throughout this entire process, accounting and invoicing software can help keep your documents in order. There’s a wealth of open invoice software out there to help businesses automatically issue and send invoices while collecting and recording payments. This keeps all your paperwork in one place with digital backup and automatic bank reconciliation. By eliminating human error through automation, you can also streamline the payments process with less risk of delay.

GoCardless offers a cost-effective, simple solution for collecting invoice payments directly from a customer’s bank account. By using a pull-based direct debit method, your business remains in control of all incoming payments. This helps prevent awkward conversations with your customers, saving time and money. Unlike bank payments, there aren’t any set-up fees involved, and GoCardless integrates seamlessly with over 200 partners including major invoicing software like Xero. By using automated systems and the latest open invoice software, you can cut down on the risk of human error interfering with payments.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.