Glossary
Open Account
An open account is a credit arrangement in which a seller provides goods or services on an ongoing basis and bills the buyer later, with a running balance tracked over time.
An open account is the most common way businesses sell to each other on credit. Rather than demanding payment at the time of each order, the seller ships product or performs work, sends an invoice, and expects payment within agreed terms such as net 30. Charges and payments are posted to a running ledger, and the balance moves up and down as the relationship continues. The terms are usually set out in a credit application, a master agreement, or the invoices themselves.
When a customer stops paying, the creditor's claim is often described as a suit on an open account or an action on account. The creditor typically proves the claim with the credit agreement, the invoices, the account ledger, and evidence that the goods were delivered or the services performed. Some states have specific procedures or statutes for account claims. For example, Texas and Louisiana have statutes that can allow recovery of attorney fees on certain account claims, subject to their conditions. The rules, and what must be pleaded, vary by state.
Here is a typical scenario. A fictional janitorial supplier, Summit Clean Co., has sold to a property management company on net 30 terms for three years. Over six months the customer falls behind, and the ledger shows $27,400 in unpaid invoices with occasional small payments. Because the account is a running balance, the supplier's records need to show how each payment was applied, so the remaining balance and the age of each invoice are clear.
Open account selling matters to a creditor because it is convenient for customers but leaves the seller unsecured. There is no collateral and often no signed note, so the strength of a later claim depends on good paperwork. A signed credit application, clear terms on each invoice, delivery proof, and accurate payment application make an open account far easier to collect if it goes bad.
Example
Summit Clean Co. sells on net 30 open account terms. When the buyer falls $27,400 behind, the supplier gathers its credit application, invoices, ledger, and delivery receipts to support a claim on account.