There are many reasons why businesses should make keeping an accurate record of all their business documents a New Year’s resolution. Keeping accurate records will help keep businesses standing on firm financial footing, and can protect them against disputes with customers and creditors. Keeping an accurate record of all business invoices can assist in balancing a budget and managing an accounts payable and receivable department. A common question many new business owners have when establishing their business records retention schedule is how long to retain business invoices? Here is a guide to help you determine how long you should retain your business invoices as part of your business retention schedule.
Payable invoices can come from a wide range of sources—suppliers, vendors, contractors, or service providers. Regardless of where the invoice comes from, you’ll want to have a record of the transaction in either a hard paper or electronic copy, stored in an accounting ledger or program. When possible, attach a copy of the purchase order and the corresponding invoice, along with the check stub or electronic transmission documentation. Invoices are billed to specific individuals or departments, and it is important to note this on the invoice for tracking and record-keeping purposes. Adhering to this guideline will help you with budgeting while providing proof of payment if ever needed.
When you send a billing or receivable invoice to a client or customer, you’ll need to record the transaction and attach a copy of the check for electronic payment when it is received. If you have to send multiple follow-up invoices before getting paid, attach each subsequent document to the original so that you can establish a paper trail. If there is any correspondence made between your office and a customer, you’ll want to include documentation such as notices of late fees or reminders of contractual obligations.
Purpose of Keeping Invoices
If you are selected by the U.S. Internal Revenue Service for an audit, having a record of all invoices sent and received can help you prove your claims of profit and loss. Additionally, invoice documentation can prove your reported earnings and deductions. Invoices can prove critical in helping to prepare tax documents, tracking expenditures, and establishing an overall business budget. When you keep all financial records, you are better able to asses and self-audit your business to ensure you have sound financial planning and accounting procedures in place.
The IRS recommends that invoices that can help substantiate business income or deductions be kept for the entire statute of limitations period, as tax records can be changed or reviewed during this period. In most cases, this is generally three to seven years, depending on the circumstances. Depending on the nature of your business, you may determine that keeping records longer than the recommended period may be beneficial to meet your unique needs.
If you have any questions on how long your business should keep and maintain invoices as part of your business records retention schedule, contact a consultant at IRCH.