There are many small details new business owners should be aware of. Even though they might be small, it could still be essential. One question that business owners, both new and old, might ask is:
“How long should I keep my Accounts Payable invoices from my Vendors?”
First, let’s talk about what that means. Accounts Payable are the amounts you owe for services or goods received. If your vendors extend credit, then you have a Liability that’s called Accounts Payable. In other words, you have an Account with that company, and you have to Pay it.
That seems simple enough. But what about those documents – they come in the mail, they arrive on your fax machine, and they show up in your email. What do you do with them? Once the bill is paid, do you even need it anymore?
The answer is yes. It would help if you kept them for many reasons. Let’s get the obvious one out of the way first – the IRS requires you to keep your documents for seven years. That alone should encourage you to attend to proper record keeping. If you’re audited, you may be required to produce backup for every single expense in your books. There could be severe fines and/or penalties if you can’t. Let’s be ready for that.
Besides, accurate record-keeping is just good business sense. Do you remember what you bought from Acme in 2017? I don’t know what I bought at Staples yesterday! Having that documentation is a good refresher for you. Also, some Vendors will print terms and conditions on their bills. Your very expensive widget is broken? Can you send it back for credit? The statement might tell you how long you have to return something. Or what if you need a serial number? It is likely printed on your paperwork as well.
A good record-keeping system is essential. But what is right? Should you print those emailed copies and file them neatly in a labelled folder, then stuff it in a metal filing cabinet along with all the others that came in the mail and on the fax machine? You can if that makes you happy. Do diminishing forests make you happy? How about buying more filing cabinets because the ones you have are overflowing? Does that make you happy? I’m guessing not.
Happily, the IRS does accept digital copies of receipts. That’s great news for a lot of reasons. First, you can get rid of all of that paper. Don’t even print the ones that arrive electronically. Use an electronic storage system to keep all of your documents safe and secure in the cloud. You can access them from anywhere that has an internet connection. They will never get lost or destroyed by water, fire, or (yikes!) bugs.
Another great benefit is that an electronic document lasts forever. Many paper documents fade over time. Even if you’ve done an excellent job of storage, the print can completely disappear. Imagine an auditor asking you for a receipt. You go to the proper filing cabinet, reach into the carefully labelled folder, and pull out a handful of blank paper. That isn’t going to be very helpful.
Now to the other essential question – where do you keep these electronic documents? There are many options. Some accounting systems (Quickbooks is one of them) have a feature for attaching the electronic document directly to the Vendor’s record in the file. It couldn’t be much more comfortable or more efficient than that.
Several apps allow you to snap pictures of your receipts and bills with your smartphone, then export those digital copies directly to your accounting software. You can also send documents via email to your accounting system.
Cloud storage also exists in a lot of other forms. SmartVault, HubDoc, and Google Drive, to name only a few. There are many options at varying price points. Most offer a free trial or remain free with limited amounts of storage. Take the time to try a few and choose the one that works best for you.
What about your documents for your clients? To them, you are the Vendor. How much will they love you if you make document storage easy for them? InvoiceSherpa is the perfect solution for that. You can send an electronic copy of your invoice via email. All they have to do is route it to their storage system. To make life even easier, InvoiceSherpa includes a Pay Now link, which is super efficient for your client and allows you to get paid 50% faster than with conventional methods.
So how long should you keep your Accounts Payable invoices? If you have an efficient digital system, it doesn’t matter. You’re always going to be compliant in the cloud! (But seven years is the official answer!)