How to organize business receipts: A step-by-step guide

When your business grows, it means spending increases. And when spending increases, you’re suddenly faced with the burden of managing more and more expense receipts. If you’re still manually organizing paper business receipts, you should know there’s a better option: automation.

Automating your expense management process improves efficiency, saves precious time, and significantly reduces the risk of human error. This can help eliminate financial discrepancies down the line.

In this article, we outline five steps you can take as a small business owner to track and organize your business receipts efficiently. These include:

1. Choosing the right receipt scanning app
2. Setting up a filing system
3. Implementing automation to manage receipt data
4. Integrating receipt automation with your accounting software
5. Monitoring your receipt tracking systems

But before we get into the weeds of how to organize business receipts, let’s review why it’s so crucial in the first place.

Why should you keep track of business receipts?

Business receipts play a crucial role in many financial processes. That’s why an organized system for managing receipts is essential for businesses of all sizes. These are just a few of the most important reasons for tracking your receipts effectively:

• Tax deductions and compliance: The IRS and other tax authorities require accurate documentation of all business tax deductions. If you’re not careful with your expense receipts all year, the IRS could reject the deductions you claim on your tax return come tax season. This could potentially lead to fines, penalties, and a drawn-out tax audit.
• Expense reimbursement: If your employees routinely make purchases on behalf of your business, you need their receipts to reimburse them properly. These business receipts ensure fair and transparent expense reimbursement and help you maintain accurate financial records.
• Expense tracking and budgeting: Receipts help you track and categorize your business expenses. A centralized system for organizing your business receipts gives you real-time visibility into all your spending activity, enabling more accurate financial planning and budgeting.
• Dispute resolution: If a vendor or customer disputes a past transaction, business receipts serve as evidence to help resolve the issue. An organized receipt tracking system lets you quickly retrieve crucial documentation, protecting your business from fraudulent claims or billing errors.
• Financial auditing: Whether it's an internal review or an external audit, receipts are key for validating business transactions. Auditors will scrutinize large expenses and use your saved receipts to confirm the charges are legitimate and properly recorded. Missing receipts can lead to failed audits and serious consequences.

What types of receipts should you save?

The short answer is that when making business purchases, you should save every type of receipt, digital or paper. The IRS describes what they are looking for in documentation for tax purposes. But these are some of the common categories of things to hold onto:

• Travel expenses like transportation, meals, and entertainment
• Office supplies
• Software subscriptions
• Inventory purchases
• Marketing or advertising costs
• Rent, mortgage, utilities, and any other property or maintenance expenses.

How to organize business receipts in 5 easy steps

Now that we’ve established why it’s crucial to manage business receipts properly, let’s get into the details of how to do it:

1. Choose the right tool for capturing receipts

There’s a dizzying number of receipt scanner apps for businesses, and navigating through them all can be time-consuming. Prioritize the following factors when evaluating these tools:

• Compatibility with your accounting software
• User-friendliness
• Optical character recognition (OCR) technology
• Pricing
• Reputation

Here are a few types of tools to consider:

Receipt scanning and tracking apps

A dedicated receipt scanning app helps you digitize, store, and organize your business receipts. You can digitally capture and categorize receipts for expenses, making tracking and retrieving them easier. Examples include QuickBooks Online, Expensify, Wave, Neat, and Shoeboxed.

Comprehensive expense management software

Expense management software does much more than just scan receipts. These tools help automate expense reporting, streamline approval processes, and manage reimbursement. They also allow you to easily capture and store receipts, categorize expenses, and generate reports. Some of the leading expense management platforms are Ramp, SAP Concur, Zoho Expense, Coupa, and Navan.

Notes and cloud storage apps

You can also use tools like Evernote or Google Drive to manage receipts by capturing and organizing them into notes, including details such as date and amount. Additionally, you can use tags, notebooks, and text notes for categorization and additional context. Although these options are easy to start with, they may become challenging to manage over time, requiring considerable manual effort.

2. Set up a filing system

Once you've settled on the receipt-capturing tool, setting up a receipt organization and filing system is next. The goal is to maintain an organized and efficient recordkeeping process so you can easily access and retrieve essential business receipts whenever you need them.

There are two main things to consider when it comes to filing receipts:

1. Categorize receipts based on expense type: Some common categories are utilities, office supplies, and travel expenses
2. Use consistent naming conventions: This includes dates and brief descriptions for easy identification

Create file folders corresponding to your various business expense categories and organize them by year or month for efficient retrieval.

3. Use automation to manage receipt data

Implementing automation to manage your receipts involves both capturing and extracting your receipt data.

Receipt capture automation

Receipt capture automation uses technology like OCR to extract and digitize information from paper or electronic receipts. With this software, you can automatically capture receipt details like date, amount, and vendor. These apps drastically improve efficiency and eliminate the potential for manual error.

Data extraction automation

Automated data extraction software gathers information from various sources, like websites, databases, or digital documents, and organizes it in a usable format. To extract data, you can:

• Implement OCR technology to extract text data from digital receipts, making it easier to process and analyze. Tesseract is a free tool that recognizes text in images and converts it into machine-readable text.
• Integrate software solutions specializing in extracting key data fields from receipts, ensuring accurate and reliable extraction for further automation processes

4. Integrate receipt automation with accounting software

After you’ve implemented receipt tracking automation, the next step is to integrate it with your company’s accounting software. This step is crucial for maintaining accurate and up-to-date financial records. Here are the two main reasons why:

1. It streamlines data transfer: Integrating automation processes with accounting software facilitates seamless data transfer between systems. This improves efficiency by freeing up your team to focus on more important work and reduces the risk of manual data entry errors.
2. It ensures accurate records: Automation helps enhance accuracy by minimizing manual bookkeeping errors. It ensures that financial records are consistently and precisely updated, contributing to reliable bookkeeping.

5. Monitor and assess your receipt tracking systems

Once you've successfully integrated your automation processes with your accounting software, you should assess the system's performance regularly to ensure it aligns with your business requirements—and to catch any potential issues.

Analyze metrics like processing times, accuracy, scalability, and error rates to assess the performance of your automated receipts system. Additionally, seek feedback from your team to help identify and address areas for improvement.

It’s also essential to periodically reconcile your financial records with bank statements. If there are discrepancies, you can figure out why and resolve any issues immediately. This will help you maintain the integrity of your financial data.

Tips for Staying Organized

Once you have your organization system in place, there’s an equally important sixth step: implementing your plan so you stay organized. Here are five best practices to remember as you put your plan into action:

1. Build a cadence: While you plan for many expenses, some happen on the fly. But when you’re busy, it might be easy to forget about your receipts. So, you need to be intentional about creating a review schedule. Add it to your calendar weekly, monthly, or quarterly based on what works for you, so things don’t start to pile up.
2. Write policies: When multiple people make purchases, things can quickly become disorganized. Create expense and receipt policies to help your team stay organized consistently.
3. Keep your files clean: As part of your review cadence, assess the stack of receipts in your files. Know how long to keep them, and regularly shred the ones you don’t need anymore to clean up some of the paper clutter in your life.
4. Use a corporate card: When you pay for everything with a card, your expenses are all in one place. Your credit card statements become an easy place to track and organize expenses and receipts.‍
5. Automate the process: If we haven’t convinced you yet, using a receipt management tool is the easiest way to get and stay organized.

How Ramp helps you organize business receipts

Organizing receipts doesn’t have to be complicated. Ramp’s expense management software offers all the features you need to put receipt management on autopilot, including:

• Capture digital scans of physical receipts with OCR technology
• Submit electronic receipts via email or text
• Report expenses on the go via Ramp’s mobile app
• Accurately code, categorize, and map expenses

On top of that, Ramp’s all-in-one finance platform makes it easy to issue unlimited physical and virtual corporate cards with customizable spend controls and category limits. Enforce your expense policies automatically and view all your spending in one place with Ramp.

Like this post? Read more small business management tips from Gary on Ledger Lab's blog.