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

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As your business grows and spending increases, you’re faced with the burden of managing more and more expense receipts. If you’re still manually organizing your business receipts, you should know there’s a better option out there: automation.

Automating your expense management process can improve efficiency, saving you precious hours spent manually reviewing and organizing business receipts—not to mention significantly reducing the risk of human error. This can help eliminate financial discrepancies down the line.

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

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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

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

Why should you keep track of business receipts?

An organized system for managing receipts is essential for businesses of all sizes. That’s because business receipts play a crucial role in many financial processes, including:

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• Tax deductions and compliance: The IRS and other tax authorities require careful documentation of all business tax deductions. If you lose track of your expense receipts come tax season, you risk having the deductions you claimed on your tax return rejected—potentially leading to fines, penalties, and a drawn-out tax audit.
• Expense reimbursement: If your employees routinely make purchases on behalf of your business, you'll need their receipts to reimburse them properly. These business receipts not only ensure fair and transparent expense reimbursement, but also 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 can serve as evidence to help resolve the issue. An organized receipt tracking system helps you find and retrieve this crucial documentation quickly, 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.

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:

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

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With that said, here are some tools to consider:

Receipt scanning and tracking apps

A dedicated receipt scanning app is a tool that helps you digitize, store, and organize your business receipts. It allows you to digitally capture and categorize receipts for expenses, making it easier to track and retrieve them. Examples include QuickBooks Online, Expensify, Wave, Neat, and Shoeboxed.

Comprehensive expense management software

This type of software can do much more than just scan receipts. These tools can help you automate expense reporting, approval, and 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 you plan to use, the next step is to set up a receipt organization and filing system. The goal here is to maintain an organized and efficient recordkeeping process so you can easily access and retrieve important business receipts whenever you need them.

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Here are a couple rules of thumb when it comes to filing receipts:

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

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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 the help of this software, you can easily capture receipt details like date, amount, and vendor automatically. These apps can drastically improve efficiency and eliminate the potential for manual error.

Data extraction automation

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

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• Implement OCR technology to extract text data from digital receipts, making it easier to process and analyze. One tool to do that is Tesseract, a free tool that can recognize text in images and convert it into machine-readable text.
• Integrate software solutions that specialize 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:

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1. It streamlines data transfer: Integrating automation processes with accounting software facilitates the seamless transfer of data 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.

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

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

FAQ: Does the IRS accept digital copies of paper receipts?

At this point, some of you may wonder if you can only use paper receipts for tax purposes or if the IRS is accommodating enough to accept pictures of receipts. After all, what’s the point of digitizing the management of receipts if you still have to hold on to all that paper clutter?

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Well, the answer is yes: The IRS accepts digital copies of paper receipts come tax time as long as they’re readable and have all the information necessary to serve as proof of purchase.

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Even so, don’t throw away those old paper receipts just yet! You should keep them for a minimum of three years as a backup in case of an audit. Many tax experts recommend holding on to receipts for up to seven years.

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:

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• 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

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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.

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