Invoices are a key part of exchanging goods, services, and payments between businesses.
Most of us know what an invoice is (a formal request for payment), but what exactly is an open invoice?
In this article, we’ll explain what an open invoice is, discuss the importance of managing open invoices, and dive into strategies, challenges, and tools for open invoice management.
Open invoice definition
An open invoice is an invoice that hasn’t been paid yet.
It's been issued to a customer, but the customer hasn’t paid yet. As soon as you issue a new invoice, it's considered an open invoice, and it stays that way until the customer pays.
At that point, once the payment has been settled in full, the invoice becomes a closed invoice.
So, the key distinction here is the payment status: open invoices reflect pending payments, and closed invoices indicate completed transactions.
Tracking open invoices is important for maintaining healthy cash flow and financial stability.
Unpaid invoices tie up revenue that the business is relying on to fund operations, pay suppliers, and plan future spending.
That’s why it's critical to regularly monitor open invoices, helping you to identify late payments early, streamline collections, and reduce the risk of bad debt.
Importance of managing open invoices
Open invoices have a direct impact on your business’s cash flow.
Every single unpaid invoice represents money your business has earned, but hasn’t yet received. The more open invoices you have, the harder it is to cover your operating expenses, like payroll, rent, or your own unpaid invoices from suppliers.
Having invoices open for too long leads to a cascade of problems.
Not only does it make it harder to meet your own financial obligations, but delayed payments from customers negatively impact your ability to accurately forecast revenue, plan budgets, or reinvest those funds in new growth initiatives.
Worse still, overdue invoices are more likely to become bad debts, especially if the client relationship breaks down or the customer becomes insolvent and is unable to pay at all.
In short, if left unmanaged, open invoices can quietly eat away at profitability.
By proactively managing open invoices, you’ll keep cash flow steady and predictable, ensuring timely payments from clients, which:
- Reduces the need for short-term borrowing
- Strengthens client relationships
- Improves your overall financial position
Common types of open invoices
There are three main kinds of invoices that may remain open until payment is received:
- Standard sales invoices. These invoices are issued after goods or delivered or services are delivered, and the invoice states a due date for payment, such as 30 days after the invoice date (Net 30). This is the most common type of open invoice.
- Recurring invoices. These invoices are used for subscriptions, retainers, or ongoing services. While in many cases, subscription payments are taken automatically via credit card, some businesses still use invoices with payment terms (e.g, Net 60).
- Pro-forma invoices. These are preliminary invoices that are sent before the goods or services are provided. While this isn't a demand for payment in the same sense as a normal invoice, they still signal an expected cost and lead to an open invoice once the actual invoice is issued. Thus, it's a good practice to manage pro-forma invoices to prepare for upcoming receivables.
Being able to clearly state the type of invoice used for a given transaction helps you determine the right approach for tracking and collecting payment, whether that’s setting up reminders for one-off invoices or using invoice automation to manage recurring billing.
Let’s take a look now at some of the most common approaches finance leaders use to keep on top of open invoices.
Strategies for closing open invoices
Managing open invoices efficiently essentially comes down to having clear systems in place for follow-up, communication, and process optimization. Here are key strategies to help ensure faster payments and fewer overdue invoices:
- Set clear payment terms: Clearly outline due dates, accepted payment methods, and any late fees in your initial agreement and on every invoice. Standardizing terms like “Net 15” or “Net 30” avoids confusion and gives customers a concrete timeline. When expectations are clear from the start, clients are more likely to pay on time, and disputes become less frequent.
- Follow up with intention: Don’t wait for the due date to check in. Send friendly reminders a few days before invoice payment is due, then follow up promptly if it’s late. Use automated invoicing tools to schedule reminders and track responses. Remember to stay professional but firm. Consistent follow-up keeps invoices top of mind and signals that you take payment timelines seriously.
- Build an efficient invoicing process: Leverage modern software tools that automate invoice creation, delivery, and tracking. This helps reduce manual errors and ensures invoices go out on time. You can even set up automated notifications and follow-up emails to stay on top of unpaid invoices and close them out quickly.
- Consider using invoice discounting: Invoice discounting is a financial arrangement where a third party provides immediate cash flow to your business, then takes a cut when the customer eventually pays. It can be a good way to free up cash flow in the short term, though it does reduce your overall earnings.
Challenges in managing open invoices
Even with the right systems in place, businesses often face hurdles when trying to close out open invoices.
Here are some of the most common challenges you’ll likely come up against.
Delayed payments
Late payments are one of the most frequent issues in accounts receivable. Often, the cause is poor internal processes on the client’s side, though sometimes a lack of urgency is the culprit.
Clear follow-up schedules and late payment charges can help create this urgency for them.
Disputes and discrepancies
Occasionally, clients dispute charges due to billing errors, misunderstandings, dissatisfaction with the product or services delivered, or even client-side systems detecting potential invoice fraud.
Disputes such as these can delay payment, perhaps indefinitely if not addressed quickly, meaning invoices stay open for longer.
The best way to handle these is with clear documentation: itemized charges on invoices, signed agreements, delivery confirmations, and strong customer service processes.
Poor communication
Many issues with open invoices simply stem for unclear or infrequent communication.
An invoice gets sent and received, and then forgotten. The client doesn’t remember to pay until they get a reminder (or three).
Staying in touch with frequent reminders, especially as the payment due date is approaching or overdue, goes a long way here.
Communicating with clarity and consistency ensures clients know what’s expected and feel accountable for paying on time.
Tools and solutions for managing open invoices
The right tools can significantly reduce the time and effort it takes to manage open invoices.
Invoicing software not only helps businesses create professional invoices, but send, track, and automatically follow up on open invoices.
Financial operations platforms like BILL offer powerful features like:
- Automated payment reminders
- Real-time tracking of invoice status
- Integration with accounting and CRM systems
- Reporting dashboards for open vs. closed invoices
Where accounts receivable teams can really win, though, is in leveraging automation.
AR automation can remove many of the manual task cause errors and lead to delays. You can set up recurring invoices, schedule reminders, and even enable auto-pay for eligible clients that wish to pay automatically via credit card or direct debit.
This not only speeds up the billing cycle but also improves accuracy and consistency.
And since your team has fewer administrative tasks to manage, they’ve got more time available to focus on resolving issues, strengthening client relationships (which helps reduce payment delays), and ensuring cash flow is steady.
How BILL can simplify open invoice management
BILL’s integrated financial operations platform is packed with helpful tools for managing invoicing, including:
- Automated one-off and recurring invoices
- Support for various payment methods including credit card and ACH
- Automated follow-ups for open invoices
- Invoice status tracking
- Customizable invoice layouts and branding
