Believe it or not, the way you store receipts has a major impact on the rest of your business. Store receipts in a file folder or drawer? You could be limiting your ability to extract data and make informed business decisions.
It may be time to learn how to organize business receipts in a whole different way. Learn how automation and digital tools can improve your ability to stay organized and in touch with your cash flow.
Why receipt organization matters
Knowing how to organize receipts for business expenses isn't just about keeping things tidy. Organizing receipts can also improve the way you manage your company's finances and can be a major help when tax season rolls around. Here are some of the ways that receipt management contributes to a successful business.
Prepare for tax season
If you're planning to use a business expense as a tax deduction, you'll need to do your homework. In other words, the IRS requires you to maintain records of your qualifying expenses in the form of paperwork and receipts. Saving your receipts will create a literal paper trail of your business expenses, keeping you prepared for each tax year.
Stay on top of your finances
A business leader relies on accurate, up-to-date financial records to keep their finger on the pulse of their company. Learning to organize your receipts will ensure that you're able to track your business income and expenses and identify areas of inefficiency. Automated tools will also empower you to generate reports and view your most valuable data.
Manage employee expenses
Physical receipts are a common way for employees to document and be reimbursed for the expenses they've incurred on behalf of your company. But even if you rely on a company credit card, you can match receipts to credit card statements and monitor employee spending.
How to organize receipts for business owners
Storing receipts doesn't have to be complicated. But as a finance professional or business owner, you'll still need a filing system that keeps your receipts organized and accessible. Follow these steps to organize your receipts and keep better track of your business transactions.
Digitize paper receipts
One of the best ways to manage your finances is by organizing receipts electronically. You can scan paper receipts and then store them on your computer or upload them to a digital cloud. Even if you don't have an official receipt scanner, you can snap a picture of your paper receipt before storing the photo on your hard drive or uploading it to your Google Drive.
Once you scan your receipts, do you still need to retain paper copies? That depends on your preferences. The IRS will allow you to submit digital receipts with your tax return.
As long as you retain digital copies of these receipts, you have no real reason to keep paper receipts. However, some business owners may want to have paper copies as a backup. You can always reduce paper clutter by storing paper copies in a separate location.
Sort by type
Even if you store receipts electronically, you'll need a consistent filing system. Each receipt should be categorized by its corresponding expense type. For example, you might categorize expenses as follows:
- Office supplies
- Meals
- Travel expenses
- Entertainment receipts
- Vendor payments
- Maintenance and repair
- Other expenses
It may also help to use separate receipt folders for each year's receipts. This will make it easier to find receipts that correspond to the appropriate tax year.
When you save your receipts electronically, use file folders that correspond to these expense categories. This will save time if you need to track down a specific receipt in the future.
If you choose to store physical receipts, you should use a similar filing system. Each receipt folder should include the expense type and year so you can locate physical copies quickly or dispose of old and outdated business receipts.
Use a consistent naming system
When filing receipts electronically, you'll need to save each receipt as a separate file. You'll thank yourself later by establishing a clear and consistent naming system.
For example, you might store receipts with a file name such as "Office Supplies 06.19.24.pdf." Note that in this example, your file name lists the expense type and the exact date. Choose whatever naming convention works for you, but be consistent with it. This will help you sift through a long list of receipts down the line.
How to organize business receipts using automation
While you can organize your business receipts using the steps above, automated tools can streamline the process and make your company more efficient. In the following, learn how automation is transforming the way small businesses manage receipts.
Receipt capture
Receipt scanning tools allow users to digitize paper receipts. But the best tools don't just store receipts as images. Data extraction technology lets you also pull information from the receipt and store it as machine-readable text.
Financial teams can use these tools to save time when processing a larger volume of receipts. And since these automated tools eliminate the need for manual data entry, you'll achieve a higher level of accuracy.
Prior to using BILL Spend & Expense, Westland Construction would take as many as 30-40 days to close their books. With receipt scanning tools, they were able to accelerate their processes. “What used to take 90 hours a month, takes two,' reports James Streeter, AP Manager at Westland Construction. Card users get a notification, take a picture of their receipt from the app, and we close the books. With BILL Spend & Expense, click some buttons, you’re done.”
Automated expense reports
Advanced software can read the data from your receipts and use that information to automatically populate expense reports. Business leaders can count on clear, accurate, and timely reports that keep track of recent expenses. The software will also ensure that your reports are properly filed for later review.
Additionally, today's best tools give you end-to-end visibility of your company's finances through an intuitive dashboard. You'll have real-time access to your most valuable data, which can alert you to suspicious activity.
Software integration
It's important to choose a platform that allows you to integrate your data into your accounting software. Doing so will streamline the data flow in your organization and give your accounting teams access to the latest and most accurate information. The whole process will be faster than ever, too, allowing you to simplify your month-end close.
Just ask the team at Breakwater, a cloud-based advisory firm. Since implementing BILL Spend & Expense, they've been able to minimize their manual processes and find strategies to control their spending.
Spend & Expense has reduced or even eliminated the manual work of receipt tracking and credit card reconciling for the Breakwater team. Amy Marshall, director of growth, reports that "in addition to control of spend, the client sees the benefits of a quicker close of the books.”
7 tips for organizing receipts
As a business owner, it's ultimately up to you to stay on top of your business receipts. Here are some tips to help you keep track of your paper and digital receipts so you can optimize your business.
1. Create a business bank account
If you've only recently launched your company, it's vital that you set up a business bank account that's completely separate from your personal finances. A business bank account makes it easier to track your spending and receipts without letting personal finances muddle the picture.
2. Save everything
Save every receipt. You don't necessarily have to save paper receipts, but every receipt must be accessible in some form. Aim to keep receipts for up to six years, which is the timeframe for underreported income. Of course, if you save your receipts electronically, you can retain these records indefinitely with ease.
3. Make notes
Don't be afraid to make notes directly on the receipt, and encourage employees to do the same. That's helpful because not every receipt will have a clear line-item description of what was purchased. A brief note will help you categorize the expense properly. Just make sure to leave your note in a blank area to avoid obscuring the data featured on the receipt.
4. Don't rely on bank or credit card statements
Yes, your expenses will also appear on your bank or credit card statements. But these documents only record the amount you spent—not what you bought. Financial statements won't help you categorize expenses or track particular expense categories. Furthermore, the IRS can't rely on a financial statement during an audit, which is why business owners must have the actual receipt.
5. Avoid cash
Whenever possible, avoid paying in cash. Cash purchases still generate receipts, of course. But they're more difficult to track. Unlike credit or debit card purchases, you won't be able to match your receipt to an external financial document such as a bank or credit card statement. Avoiding cash purchases can help you preserve accuracy across your financial data.
6. Ask vendors to send you electronic receipts
Whenever possible, request that vendors send you electronic copies of receipts. This will actually eliminate the need to scan receipts, giving you immediate access to financial data. Your software can still extract receipt data to populate expense reports and other internal documents, and you can rename the receipt to store it in your electronic files.
7. Automate your receipt organization process
Implementing automation can streamline the entire receipt organization process. Businesses that use automated tools will see greater accuracy in their records, as well as achieve greater speed. These benefits can likewise empower small businesses to handle higher transaction volume without overwhelming their existing staff.
Ready to organize business receipts with automation?
BILL Spend & Expense is an innovative, intuitive expense management system. It'll enable you to both extract data from your business receipts and generate expense reports automatically. BILL Spend & Expense automatically categorizes transactions and allows you to review your expense data in real-time. Learn more about BILL Spend & Expense and how it can optimize your expense management processes.
Receipt tracking FAQ
How do most businesses keep track of receipts?
Many small business owners rely on a physical storage system to organize receipts, though a growing number are pivoting to digital systems to organize and store digital receipts.
Does the IRS still require receipts for business expenses?
Yes. In order to claim a deduction on your tax return, you must have a receipt to validate the expense. Bank and credit card statements are inadequate since these forms do not list the items purchased.
Are scanned receipts valid for tax purposes?
Yes. The IRS will accept scanned receipts as long as they are legible. However, some business owners prefer to retain paper receipts as a failsafe.
How long should I keep my receipts?
Generally, the IRS advises that you keep receipts for three years from the date you file your original tax return or two years from the date you paid your taxes (whichever is later). However, it also recommends retaining records for six years in the event of underreported income and seven years for bad deductions or losses from worthless securities.
