Last editedJul 20222 min read
Invoicing not only ensures your business gets paid but is an important component of accounting. As with other accounting and payment topics it comes with its own set of terminology. Have you ever seen invoices referred to as ‘open’ or ‘closed’ and wondered what the difference is? We’ll define the open invoice meaning and describe how it works below, helping you find ways to make your invoicing process more efficient.
Open invoice definition: what is an open invoice?
The open invoice definition is synonymous with that of an outstanding invoice. In other words, it’s an invoice that’s been sent through to a customer but has not yet been paid. As with any invoice, it’s a document showing the amount owed, a breakdown of services or products provided, and the payment due date.
Invoices are typically sent directly to an individual buyer, accounts payable department, or accounting department. Once an invoice has been created and sent to the appropriate client, it’s described as ‘open’. These are important to keep track of because they’ll help you monitor payments and manage cash flow more effectively.
How does open invoice processing work?
The invoicing process begins when a vendor creates the invoice, typically after goods or services have been provided to a client. The invoice shows all the details needed for accounts payable to process and pay the amount due. When you look at an open invoice template, you’ll typically see information such as:
Unique invoice number
Vendor name and address
Client name and address
Itemised list of services provided
Per-unit or per-hour cost
Total amount due
Payment methods and due date
When a company receives the open invoice, it must review the document carefully for errors, ensuring that the total amount and services rendered match its own records. If there are any errors or discrepancies, the client will send the invoice back or ask for an amended document. Be sure to review your invoice carefully before submitting it to help prevent any delays with payment.
How to close an open invoice
It’s important to include your preferred payment method on the invoice while it’s still open, directing customers to a link for easy payment. When payment is received, the open invoice can be marked as paid in the accounting books. At this point it can be considered closed.
Further action is only needed if the payment was late or if you only received a partial payment. In either of these cases, you might choose to add the outstanding balance or late fee to the next invoice. If it’s a one-time purchase, you could send a separate invoice to settle the remaining balance.
How to get open invoices paid on time
Unfortunately, late invoice payments are a way of life in the UK, with 1 in 6 SME invoices remaining unpaid after 90 days. So, what can you do to close those open invoices in a timelier manner?
We’ve already touched on the importance of verifying all invoice details and providing a preferred payment method. Another way to ensure your open invoices are paid on time is through using invoicing software to automate the process. Most accounting and invoicing software will use pre-existing templates to raise invoices automatically, submit them to all clients, and follow up with payments. Automated systems also record your transactions and reconcile your accounts, eliminating the chance of typos or human error-related delays. Digitally managing your invoices keeps everything in one central place for easier tracking and retrieval.
With some payment methods like credit cards and bank transfers, the client decides when they wish to pay the invoice. GoCardless offers an alternative by enabling businesses to collect open invoice payments directly from the customer’s bank account. Easy and cost-effective, it can be used to take both one-off invoice payments as well as recurring invoice payments. Using pull-based Direct Debit, the business retains control over payment timings and amounts – avoiding any awkward conversations with clients.
According to an IDC study, businesses can get paid up to twice as quickly when accepting GoCardless payments on their open online invoices. It’s also easy to set up without any fees involved, and integrates seamlessly with accounting partners like Xero, QuickBooks, and others.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.