Organizing your business receipts is an important part of tracking your business expenses. Not only does keeping your receipts organized help you prepare your business tax return, but it also helps you protect your business from a loss of profitability and even fraud.
Unfortunately, organizing receipts falls under the category of “filing”—a part of business accounting dreaded by many business owners and their administrative staff.
Luckily, we’re here to help. In this article, we’ll look at some of the ways you can make organizing your business receipts less onerous.
How to Organize Business Receipts: 5 Tips to Follow
When you hear the word “receipt,” chances are you envision the little slip of paper the barista at your favorite coffee shop offers after you’ve paid for your order. This slip of paper is the most common type of receipt, but there are numerous others.
Receipts can also be a full sheet of paper—like the bill of sale you get from the auto mechanic, or paperless—like an email you receive after an ecommerce purchase.
In any case, if you’ve resigned yourself to the drudgery of buying a bunch of filing folders, labeling them with each vendor’s name, and spending your weekend organizing your receipts, we’re here to provide you with some relief.
The standard “create a folder for each vendor, sort alphabetically, and then file your receipts accordingly” model is outdated and unnecessary. Even if you choose to retain paper receipts, you can streamline your business receipt organization with the help of technology.
The following are some of our top tips for organizing your business receipts efficiently.
1. Keep your receipts.
Receipts are an important part of your business’s expense tracking system—but they can also be annoying. For this reason—and also to minimize your environmental impact—you might be tempted to decline when a cashier asks if you want a receipt.
You should resist this temptation. When it comes down to it, the benefits of keeping and learning how to organize your receipts—especially for business taxes—outweigh the burdens.
Overall, the benefits of receipts include:
- Making audits easier: Although undergoing the dreaded income tax audit isn’t a foregone conclusion, you should still be prepared to defend yourself should your business be subjected to one. The IRS has strict substantiation requirements for your business’s recordkeeping, and receipts play an important role in defending your business expenses.
- Saving money: Few things are worse than having to “eat” expenses in your business when a few measures could have prevented the additional expense. If you need to return an item you have purchased, or if you need to have warranty work done on a piece of equipment, you will probably need a receipt.
- Protecting your business from fraud: Whether it’s petty cash, expense reimbursements, or use of a company credit or debit card, if you grant your employees direct use of business funds, you must require them to retain and submit receipts. Even if you are the only person using your business’s funds directly, keeping your receipts can protect you from fraud and even unintentional banking errors. If you need to dispute all or part of a purchase with your bank or credit card company, they will ask for your receipt to back up your claim.
2. Use your accounting software as an index for your receipts.
Instead of spending your time organizing paper receipts by hand, leverage technology to more easily organize your business receipts.
Every transaction in your business’s accounting software includes the following information:
- The vendor, employee, or customer name
- The date of the transaction
- The amount of the transaction
- A chart of accounts classification for the transaction
With this information, your accounting software can actually be used as an index for your receipts.
Traditional filing organizes receipts by the vendor’s name, but you can easily use the date of the transaction instead. If you make a relatively low number of purchases each month, you can organize your receipts in 12 folders—one for each month of the year. Leave the current month’s folder on your desk, and each time you make a purchase put the receipt in the folder. At the end of the month, store the folder in your filing cabinet.
If you need to refer back to a receipt at a later time, you would first find the transaction in your accounting software. Then, you would go to the folder for the month in which you made the purchase to retrieve the receipt.
If your business has a high monthly purchase volume, you can organize your filing by chart of accounts classification instead of date. This method takes a little more forethought because purchases often post to multiple accounts.
For example, if you purchase a new printer, pens, and snacks for the breakroom at the office supply store, the transaction will be split between Office Equipment, Office Supplies, and Breakroom Supplies in your chart of accounts. If you choose to file by chart of accounts classification, we suggest filing your receipts by the category that makes up the highest percentage of the receipt.
That said, when you use your accounting software as an index, you will be able to easily locate receipts when required without spending a lot of time filing. Even better, this method works with both paper and electronic filing systems.
3. Create an electronic filing system and attach your receipts to your transactions.
If you use QuickBooks Online or another accounting software that allows you to attach receipts to transactions, you can use your accounting software as an electronic filing system and file your receipts by transaction.
Attaching receipts to the transactions in your accounting software eliminates all guesswork about where the receipts are in the filing system. If you need to produce a receipt for an audit, refund, or warranty work, you just need to open the transaction and click on the attachment.
Of course, if you go this route, you’ll want to make sure the electronic receipts are legible and identical to the originals. This ensures your electronic receipts will be accepted in the event of a business audit.
Another benefit is that electronic receipt capture software extracts the key information from the receipt using a technology called optical character recognition (OCR) This prevents you from having to key the vendor name, transaction date, and purchase amount into your accounting system— saving you time and preventing the possibility of data entry errors.
4. Consider a vendor-based organizational system.
Sometimes it just makes sense to organize your business receipts by vendor name. Filing by vendor name makes the most sense when you make relatively few purchases from a set number of vendors.
One inefficiency we see frequently is creating a folder for every single vendor, even vendors only used occasionally. If you choose to file by vendor name, but have some vendors you only purchase from occasionally, create a few folders in your filing system for vendor categories instead (restaurants, gas stations, gifts, etc.).
5. Back up your system regularly and establish a clear naming convention.
Organizing your business receipts electronically is fast and easy, but that doesn’t mean it’s without its pitfalls. If you choose an electronic receipt filing system, it’s important to remember that even cloud-based storage systems can fail.
Therefore, you should create scheduled backups of your electronic receipts to keep possible data loss to a minimum. It’s your responsibility to implement digital security measures to safeguard your business documents, and software failure (or physical damage) is not always accepted as a reason not to be able to produce receipts and other business documents when requested.
Additionally, you’ll also want to create a file naming convention. At a minimum, this should include the date of the transaction and either the vendor’s name or the chart of accounts classification.
For example, a purchase from Lily’s Office Supplies on August 8, 2020, could be named 20200808_LilysOfficeSupplies. Your naming convention should be consistent and allow you to determine if you are accessing the correct receipt before you open the file.
The Bottom Line
Organizing your business receipts is an important recordkeeping task—especially when it comes to tracking expenses for business taxes, potential audits, and even general accounting purposes.
That said, although it may take a little time and effort to determine the best receipt organization system for your business, once you do, and commit to following it, you’ll be making things much easier for yourself in the long run.