What is an open invoice? How does it work? When you start your business, you may use cash only. After some time, your business transitions into creating invoices for sold products and services received. Using invoices allow your customers to pay you back later. Why is invoice keeping important for your business? What are the various types of open invoices?
It is a detailed document that shows an existing transaction for services or goods that awaits full payment. What is an open invoice, you may ask? An open invoice is when an online payment is pending in your revenue section. It shows the due date for payment and the amount owed. When the customer makes their payment, it is moved to the revenue section. We then say that the invoice is closed. The invoice will be under the payment section after transferring your payments to a business’ bank account. It includes:
- Payment methods are yet to be added.
- Pending payment according to the online payment processor.
- An online payment awaiting confirmation.
- Failed or declined charges.
What is an open invoice and, how does it work?
The created open invoice is part of the account’s balance sheets of your business and the customer. An open invoice is an asset to the business providing the product or service. These funds can be relied on to pay business liabilities. The customer sees the open invoice as a current liability. It is always the case until when the invoice is closed.
When the merchant receives their payment in full, an open invoice transitions to a closed invoice. This transition occurs on both the accounts of the merchant and customer. Keeping this record is essential in case your business gets audited. If the invoice payment has a problem, this record will enable easy tracking. Include the customer’s check number and invoice number in the transaction. The invoice is closed when the payment is made in full and matches the correct amount stated in the invoice.
Importance of invoices.
- Prompt payment.
The amount expected for the services provided is outlined in detail. It prevents underpayment and ensures you get your payment in time. You set the deadline and charge a fee for late payment. It enables the clients to stay organized when making payments.
- Audit evidence.
Your businesses’ revenue is liable for auditing. To prove your business is legit to the auditor, keep an organized and sequenced record for income received and services provided.
- Court evidence.
If a customer fails to make their payment, a well-detailed invoice will prove to the court that the product or service delivery occurred.
Types of open invoices.
These are open invoices that the customer has failed to pay and are past due. If the customer fails to make the payment, it is retired by the system automatically. Your invoice will have an existing bill until when the payment is successful.
- Pending online payments.
A payment processor initiates this open invoice. The payment confirmation is not yet received. The invoice stays in this category until when the payment is received. The online payment processor can either automatically confirm or decline the payment.
- Pending offline payments.
The payment is pending in an offline processor like bank transfers or cash payments. It takes longer to conclude these transactions. The payment status of these transactions is confirmed manually.
- Failed payments.
It is when the payment failed, and the transaction has been retired. Payment failure can happen because:
- The customer’s account has insufficient funds.
- The customer’s card declined.
If the auto-retry limit is reached, a bill transitions to failed payment.
What should an invoice include?
To differentiate an invoice from a receipt, quote, or credit note, you should use the word ‘invoice’ to identify the document type.
- Invoice number.
Each invoice should have a unique invoice number for clear identification. The reference and numbers used should be recorded. For easy management, use a sequential numbering system. You can use either numbers or letters for reference.
- Name and address of your company.
You should clearly state the business name and address on the invoice. In case of a dispute or question, leave contact details for the customers.
- Name and address of the customer.
It is essential for the customer who wants to claim back charged
- Goods or services description.
The goods or services are described clearly on separate lines for easy identification.
- Date of supply.
When were the services or goods issued? The supply date differs from the invoice date but is usually within 30 days.
- Date of the invoice.
It is the date for invoice generation.
- Amount of goods and services to be paid.
Each item in the invoice is marked with an individual amount.
- Total amount payable.
It is the total amount to be paid for the goods or services offered.
- Payment terms.
It shows the length of time you have to complete your payment. The customer should agree on the terms and conditions.
- Order number for the purchase.
Uses of invoices.
- Help to track sales.
- Historical data helps to predict future sales.
- Ask clients for timely payment.
- For businesses that sell products, it helps to track inventory.
The biggest frustration for doing business is not getting paid for your services or products. For timely payment, recognize and record an open invoice. Keeping an invoice for your business is essential because of prompt payment and, it provides evidence for audit and the court. The types of an open invoices are bills, failed payments, pending online payments, and pending offline payments. Now that you know what is an open invoice, how they work, and their types you should be able to conduct your business without worry. Learn about the uses of invoices. A standard invoice should include invoice number, date of supply, date of invoice, company’s name and address, description of goods or services, and the total amount payable.