If you start a new business or have an advanced enterprise, the invoice becomes a common vocabulary when running your accounts. You may start your business with cash payments, but eventually, the company will grow, and you need to invent better payment methods to balance and record your accounts. Besides, When working with other businesses, some purchase products and services on credit, making your transaction mode unreliable. What is an open invoice? Open invoice describes the period between the issuance of an invoice and the day of payment. An invoice is a description provided when a purchase has been made, but payment will be given later. Payment would be partial or full payments, which translates to a closed invoice.
Why is it Useful to Use an invoice in your business?
When you are running your business, it’s your right to get payments for the services and products you sell to your clients. As the service provider, you set your terms regarding payment modes, which becomes more comfortable using an invoice. The invoice acts as a formal quotation of your payment terms and conditions. Read some of the advantages of having invoices in your business below.
- It Prompts Customer Payments.
Customers who get the goods and services first and pay on a later date need to be presented with an invoice to prompt their payments. Often, some customers will never settle their debts until they get official communication through invoices. So, to avoid bad debts, any business needs to include invoices in their accounting system.
- Helps Create Brand Awareness and Reputation
Presenting your customers with a quality designed invoice is a representation of how organized your enterprise can be. Additionally, the timely generation of invoices and collection would improve clients’ satisfaction, hence improving customer loyalty. Moreover, you can market your business by including the website, physical address, services offered, and an official logo. Having all this covered in the invoice receipt, you improve the business reputation and get referral customers from your loyal clients.
- Useful in Rook-Keeping Records
Record keeping is an integral part of any business’s smooth operation, whether a startup small-scale or a large-scale enterprise. According to the HMRC laws and policies, every enterprise must maintain its accounting records for up to six years without disposal. This helps in crisis management, transparent monitoring of the business growth and development, and auditing purposes.
- Legal Benefits
According to the HMRC, having sales invoices is a policy all businesses should adopt in their accounting system. An invoice is a piece of substantial evidence that a business transaction was completed between the vendor and the customer. This may be used to resolve conflicts in the future if any may arise. Also, keeping copies of transaction invoices would help the enterprise avoid unnecessary disputes with the customers, hence protecting its reputation.
Open Invoice Designs/Types
In accounting, open invoices are categorized into four types. That is:
- Pending Online Open Invoices
The pending online invoices are generated by an online payment processor like stripe, GoCardless, and PaySimple. The payments are initiated, but it becomes a pending online invoice because the transaction has not been completed from the customer’s bank account end. They remain in that category until the entire transaction is completed. However, the payment processor may automatically decline the payments, which requires you to take no action.
- Bills Open Invoice
This type of invoice mandates the customers to complete their transactions. In case the payment system fails, it automatically retries the payment processing. The retry interval and times can be adjusted to fit your requirements. Bills open invoices may generate automatically once the retiring payment process fails due to technical failures.
- Pending Offline Open Invoice
Like the above mentioned, pending offline open invoices are generated by the payment processor. However, unlike the online pending, offline invoice narrated the transactions pending offline. They are common in places where cash payments or bank transfers do not reflect; thus, the payment procedure has not been finalized. The business person will be forced to manually keep track of the payment status to confirm offline transactions.
- Failed Payment Open Invoice
A payment transaction becomes failed when the auto retries bill payment is unsuccessful and has hit its limit. Bill payments would be unsuccessful due to other factors, including; insufficient funds in your account, declines in the account details, and poor network connectivity. Failed payment open invoice needs further follow up from the attendant to complete the transaction and transfer it to closed invoice for book-keeping.
Now that you have read the importance of having an invoice and the different types of opens invoices, it’s your initiative as a business person to ensure you offer your customers the best services ever.