What is an open invoice? Definition & guide

An invoice is a document sent by a vendor to a customer, requesting payment in exchange for goods or services. But what is an open invoice?

Let’s look at what an open invoice is, the risks of open invoices, and how to close them.

What is an open invoice?

In the US, only 29.1% of invoices are paid on time.¹ Unpaid invoices can cause problems - especially for small businesses with limited working capital.

From the moment an invoice is sent until the moment it’s paid, an invoice is considered open.

Invoices are crucial for your accounting process. They enable your business to monitor cash flow and keep a financial record of all business activity. Open invoices play a key role in this process, as they show you who still owes you payment.

What is an open invoice report?

An open invoice report is a list of all open invoices and unapplied credit memos, over a given time period.²

An open invoice report can be used to reconcile unpaid invoices to your general ledger accounts.

Open invoice examples

Not all open invoices are equal. Some require more attention from your business than others.

Here are some common types of open invoices to be aware of.

Bills

When a customer fails to pay your open invoice within the set time period, it will become a past due invoice. The payment processor that monitors all invoices will label past due invoices as bills.

You should keep a careful eye on bills as they indicate your customer has problems paying on time. If this happens often, your customer may have to pay invoice late fees and other penalties. This can hurt business relations between you and your customer.

Fees and discounts

Past due invoices and bills can lead to late fees. Late fees vary from business to business, with some offering a grace period after the due date of the invoice.

On the flipside, you can also offer your customer early payment discounts. If your business relies on inward cash flow or prioritizes fast payment, then offering discounts is a good way to incentivize early payments.

For example, some businesses offer the 2/10 net 30 discount. If customers pay within the first 10 days of the invoice issue date, they’ll receive a 2% discount. Otherwise, they’ll need to pay the full amount within 30 days of the issue date.³

Discounted offers like these can boost early payments for your business, increasing inward cash flow.

Incomplete payments

An incomplete payment is an invoice that your customer has failed to pay. Therefore, it’s also known as a failed payment.

For example, perhaps they’ve entered their billing information incorrectly or have insufficient funds in their bank account. The problem could also be on your side. For example, you may have sent the invoice to the wrong address or made a mistake in the creation process.

Similar to bills, incomplete payments should be watched carefully to ensure they don’t become past due invoices and incur late fees.

Automated invoicing software can help you keep track of incomplete payments. They can send automated payment reminders to customers as well as notify you of outstanding invoices.

What is an open invoice in QuickBooks?

QuickBooks is accounting software designed for keeping track of income and expenses. An open invoice in QuickBooks is an invoice that has not yet been marked as paid. The 'Open Invoice Reports' are where you can keep track of open invoices in QuickBooks.

• You can view a report for all your open invoices on QuickBooks by going to the “Reports” tab.
• From here, you can search for “Open Invoice Report”.
• Set the search criteria to “All Dates” and “Current” to get a list of all current open invoices.⁴

The report is listed by customer and includes the due date, amount and invoice number. You can also schedule this report, so you have a regular overview of outstanding invoices.

How to close an open invoice

The vendor and customer will then record this transaction in their accounting process.

While open invoices aren’t necessarily bad for your business, at a certain point they can cause problems.

Too many open invoices means your business is missing payment. This can cause cash flow problems, preventing you from making other necessary payments. In the worst case, late invoice payments are sometimes written off as bad debt.

You can reduce the time invoices are left open by sending the invoice correctly, making it easier for your customers to pay.

Requesting payment via E-invoices can be an efficient way to do this. E-invoices are invoices sent by email or an online invoicing software.

E-invoices make delivery instant, in comparison with invoices sent via post. You can attach payment links and offer a wide range of payment methods to make it easier for your customer to pay.

Businesses tend to pay E-invoices within an average of 3 days, in comparison to 15 days for invoices sent by mail.⁵

Receive invoice payments faster with Wise Business

Making payment easy for your customers is key to closing invoices faster.

Wise is a smart online alternative to traditional banks that can make international business easier. With the Wise Business account, you can access local account details for up to 10 major currencies. You get access to IBANs, Routing Numbers, SWIFT codes and many other details. This makes it easy for your customers to pay and for you to receive the payment.

You can use the free invoice generator, or invoice templates, and add your account details to make payment faster.

And if you want to convert a foreign currency, you’ll have access to the mid-market exchange rate, saving you on high conversion fees.

Find out more about Wise Business

All sources checked May 2, 2023.