Why businesses aren't yet paperless

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Why businesses aren't yet paperless

If you still keep receipts and invoices in shoeboxes or filing cabinets, you're far from alone, according to a new survey. We weigh up the pros and cons of going paperless.

Research published by cloud accounting software provider Xero found 65 percent of Australian small businesses store at least some of their receipts and invoices in boxes or files – and 57 percent of respondents said their filing system isn't very organised.

Worryingly, just under four percent have no storage system at all for receipts and invoices, which makes us wonder how they would fare if they were subjected to an audit or review by the Australian Taxation Office.

Why does Xero care? Its software -- like that of MYOB and Sage – allows scanned or photographic images of documents to be stored alongside the corresponding accounting transactions.

Other electronic filing systems that can be useful for keeping receipts and invoices so they can be easily retrieved include DocketBank, Evernote, ReceiptBank and Shoeboxed.

Why keep paperwork?

Older businesses are more likely to use paper systems, according to Xero's survey. Among the users of paper-based systems, 40 percent have been running for more than ten years, but only eight percent have been in business for one to three years.

This is hardly surprising given the natural reluctance to change existing processes when it seems easier to stick to what you're already doing.

We also suspect it could be the result of newer businesses being less likely to have a specific place of business (or where they do, they’re perhaps more likely to be in a co-working environment), coupled with the apparent popularity of cloud-based systems among newer business. Those who are comfortable with keeping key business software and hardware off-premises are also likely to be happy with the idea of destroying physical documents after imaging them.

The ATO seems to require that electronic images of such documents are 'true and clear' reproductions that have not been manipulated or altered after storage, are kept for the required period, and are accessible to ATO staff – but we strongly recommend you seek professional advice before destroying the original documents.

We'd still be concerned about the retention requirement when using systems operated by outside providers, given the possibility that such systems can be shut down with little or no notice. Even though the ATO has said "it is generally not necessary to retain a hard copy of the information contained in an electronic record unless a particular law or regulation requires the taxpayer to retain the paper copies", it seems sensible to keep the original documents (simply filing them by year, quarter or month might suffice, depending on the volume) as a backup for electronic copies.

The benefits of going paperless

"The data shows us there are still many Australian small business owners who aren't using technology to find day to day efficiencies within their business and cut down on time consuming manual processes," said Trent Innes, managing director of Xero Australia. 

"Aside from making it incredibly difficult to keep track of business expenses and cash flow, paper-based receipt/invoice systems become very costly and time consuming."

For many microbusinesses, the number of receipts and invoices processed each month is so small that there's little benefit to storing them electronically other than making them easily accessible to an external bookkeeper or accountant, although for some that might be sufficient justification for the extra time and cost involved in imaging those documents. As long as you enter the transactions into your accounting system promptly, tracking expenses and cash flow is no big deal.

But as the number of transactions increases, so does the probability that you'll need to retrieve at least one of them in a given period, along with the difficulty of retrieving them manually, compared to electronic systems.

So while we wouldn't make a blanket recommendation that all small businesses should digitise paper invoices and receipts, we do think they should give due consideration to the idea.

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