Knowing how to manage paperwork is key when you’re a business owner. Lost documents can put you in a legal bind that damages your credibility and finances.
This is why it’s so important to know and understand how to store them (and for how long).
Throwing away important documents too soon can turn into a legal issue. For example, if you throw away human resource paperwork, such as applications too soon and an employee brings up a dispute about their role in your company, then it’ll be hard to fight against it.
Learning the laws of your country on how long to keep these important documents is vital. But for the sake of this article, we’ll focus on accounts payable records.
Let’s review how long you should keep these on file in your business.
What is Accounts Payable?
When you’re a business owner, you have to know the basics of all its departments. And this includes finance.
In accounting, it’s all about checks and balances. Accounts payable revolves around the goods you buy on credit (or on account) without signing a promissory note.
This transaction is then recorded in the company’s liability account—accounts payable, also known as trade payables. The accounts payable process plays a major role in ensuring the accuracy of a company’s financial statements.
This normally includes:
- Timely processes of accurate and legit vendor invoices
- Accurate records in the proper general ledger accounts
- The accrual of obligations and expenses that aren’t yet processed
At the end of the day, accounts payable can have a negative or positive effect on your company’s credit rating, cash position, and relationships with suppliers.
USA Requirements for Accounts Payable Records
If you own a business in the US, then it’s recommended that you keep business ledgers and key financial documents on file. This includes profit and loss statements, financial statements, accounts payable, accounts receivable, invoices, and the like.
But for how long? Ideally, you should retain accounts payable records for at least seven years. And if you have a method of keeping them even longer, without costing your business more, then go for it.
Digital record keeping is growing in popularity because of its space-saving and money-saving benefits.
UK Requirements for Accounts Payable Records
On the other side of the world, you’ll find businesses are required to keep certain financial records on hand. It’s recommended that you keep financial and accounting records on hand for at least six years.
It’s also important to note that you have to notify Companies House if you store your records in a place other than your company’s registered address.
And if you don’t keep financial records for the time required, you could end up fined £3,000 by HRMC or you could be disqualified as a company director.
The six-year period for retaining financial documents begins from the end of the last company financial year it’s related to. However, there are some cases where you must keep it longer.
- There are transactions that contain one or more accounting periods for the company
- A company tax return was turned in late
- A compliance check has been initiated by HMRC
In the event your records are lost, damaged, or stolen, it’s important to notify your Corporation Tax Office immediately. It’s also good practice to include this detail in your company tax return.
Australian Requirements for Accounts Payable Records
In Australia, you’re required to keep financial records, which include staff rosters, pay records, depreciation schedules, tax documents, and receipts and invoices.
The length of time it’s required to keep financial records varies based on the government department or organization.
For example, with the Australian Securities and Investment Commission (ASIC), you’re required to keep certain records for seven years. Then the Australian Taxation Office requires you to keep business records for at least five years from the date they’re created.
Canadian Requirements for Accounts Payable Records
In Canada, it’s required by the Canada Revenue Agency (CRA) to retain your tax return and supporting financial documents for at least six years. This way, you can prove your accounts payable and receivable transactions in the event of an audit.
Both paper and electronic accounts payable records must be kept for six years. If you do keep your documents in a digital format, be sure it’s accessible to the CRA.
Now, if you want to dispose of these documents before the 6 years, then you’ll need to get written permission from your tax services office. You can use Form T137, Request for Destruction of Books and Records.
This won’t guarantee you’ll receive an exception from the CRA. Do note that if you do it anyway, you may be prosecuted.
How Closing Your Business Affects Your Accounts Payable Records
You may wonder what the requirements are if you decided to close up shop. If you’re not incorporated, such as with a partnership or sole proprietorship, you still have to keep these financial documents for six to seven years in most countries.
On the other hand, if your business is incorporated, then you’ll only have to keep the records for two years from the time you close down your business depending on your local laws.
How to Maintain Financial Records
No one wants to get audited. And the only thing worse than that is not having the proper documents to get out of one.
This is why it’s so important to have a document management process and system in place. There are several ways you can maintain your records.
This includes via paper stored in your facility, via paper stored on a 3rd party site, or electronically. All come with their benefits.
In some cases, businesses keep both a digital and hard copy of certain documents. Also, there are some instances where you’ll have to retain the hard copy of a document, such as a contract.
The issue with paper-based document management is that it’s not reliable. It’s easier to have these documents misfiled or stolen by identity thieves. However, the hard copy can help to validate your electronic records.
Then you also have to worry about paper documents taking up a lot of storage space and being destroyed.
Most government departments now accept electronic copies of business records. In order to comply, the digital copies must be a clear copy of the original document.
Just be sure to backup all of your electronic files just in case there’s a system failure.
The Advantages of Electronic Record Keeping
Imagine looking for a financial document from five years ago. You have a system in place that will allow you to quickly search for the document within minutes.
This can, in turn, streamline your business processes and even boost productivity.
It’s also worth noting that electronic documents are easy to duplicate for your records. There’s even software you can use like eversign that enables you to create or upload a document and email it to recipients for online signatures.
Then there’s the space-saving benefit—everything’s in the cloud and on your computer, which means no storage space being taken up in your office.
Just be sure to backup your files so it doesn’t end up corrupted due to a system failure.
Improving the Security of Your Business Documents
Your accounts payable records are important for filing your annual taxes. But the method you use for storing them should be secure.
There are a variety of platforms you can use that offer great security features. This includes Google Drive and Dropbox.
Whatever platform you use, be sure to activate the automated backup system. This will automatically backup all of your selected folders to ensure you never lose important documents.
Safeguarding critical data, such as Tax ID numbers, names, addresses, and phone number is critical. This becomes easier when you have the right digital tools.
Ensuring Your Accounts Payable Records Are Properly Managed
Now that you know how long you must keep accounts payable records in most countries, it’s time to implement a way to track and manage them. You can use software that’ll store and automatically destroy key documents once they expire.
Ready to start planning how to manage your financial records? Let us know in the comments how you plan to do so!