How to go paperless with your records

A paperless business still receives some paper. The difference is that the digital file becomes the record. Documents that arrive digitally stay digital, paper gets scanned as it comes in, and the books, the files and the backups are all held electronically.

business.gov.au says either paper or digital records are acceptable, and that the ATO recommends digital where possible. It sets out what digital record keeping offers: it takes up less physical storage space, works out amounts automatically, makes reports easy to produce, and is simple to back up and keep safe from fire or theft.

It credits manual systems with some advantages too, including less risk of data becoming corrupted and no duplicate copies of the same record. A well-planned paperless system answers both: backups guard against corruption, and one agreed home for each document stops several versions building up.

business.gov.au and the ATO set out several points that apply to records kept digitally:

• business.gov.au says that if you keep digital records, you don't need to keep paper copies as well, unless a particular law or rule requires paper.
• According to business.gov.au, an electronic image of a paper record is acceptable to the ATO when it reproduces the original truly and clearly and is kept under the record-keeping rules.
• business.gov.au says the device holding the records must be one you can get into, with all its passwords, that is backed up against failure, and where you control the information that is entered, processed and sent.
• The ATO says the information in a record mustn't be altered, and the record must be stored so that it is safe from alteration or damage.
• The ATO asks that stored records be identifiable, labelled or indexed, and says it must be able to extract your data and convert it into a standard data format, such as CSV.
• If records are protected by passwords or encryption, the ATO says you need to provide the access details or encryption keys when asked.

Settle a few things before you scan anything, and write them down. The ATO asks businesses to keep information about their record-keeping system so it can be checked against the requirements, so a short written description of your set-up is useful in its own right.

• Where records will live: one main storage location, such as attachments in your bookkeeping software or a single shared folder, so each document has one home.
• How folders are arranged: for example one folder for each month and type, such as sales, purchases and bank, grouped by financial year.
• How files are named: the same pattern every time, so a search turns them up.
• Who can get in: which people have access, and where the passwords are kept, so the business isn't locked out if one person leaves.
• How backups happen: what is copied, how often, and where the copy is kept.
• When you start: a clear date from which new records are kept digitally, so there is no doubt about where to look for a document.

If you are changing bookkeeping systems at the same time, keep the old system's data where you can still open and read it. The ATO says that if your record-keeping system changes, you must still be able to rebuild your original data.

The simplest paper to deal with is paper that never arrives. Before you start on the backlog, move as much as you can to digital:

• Ask suppliers to email their bills and statements, and have them sent to one address that you check regularly.
• Switch to electronic statements from your bank and card providers.
• Ask for a digital receipt when you buy. business.gov.au lists digital receipts among the kinds a business can give its customers.
• Send your own invoices by email or through your software. business.gov.au suggests a delivery method that makes your invoices easy to record and to find again.
• Keep a copy of every invoice you send. business.gov.au says your invoices are a record of the income you receive.

An email inbox is not a filing system on its own. Move each document out of the inbox and into its place in your storage when you enter it in the books.

Some paper will keep coming: receipts from shops, delivery dockets, the occasional posted bill. business.gov.au's end of financial year checklist lists making digital copies of paper documents and backing up digital records among the tasks you may need to do. Scanning each document as it arrives means there is no pile waiting at the end of the year.

1. Scan or photograph the document flat and in good light, capturing the whole page, every page, and any notes written on the back.
2. Check the image before you move on. For a true and clear reproduction, every amount, date and detail needs to be readable.
3. Name the file using your pattern and put it in the right folder.
4. Find the matching transaction in your books and attach or link the image to it. Enter a transaction only if it has not already been recorded; a delivery docket or statement can support an existing entry without creating another purchase.
5. Put the paper in a tray kept for scanned documents until you decide what to do with it.

business.gov.au suggests backing up digital records and, where possible, holding a second copy securely away from the business, for example in cloud storage.

It describes web-based or cloud systems as letting you update your books from anywhere and storing your records off-site automatically, while warning that they carry security risks. Its cash flow guidance also suggests learning how to protect the business from cyber threats and keeping digital tools updated so they have the latest security fixes.

• Keep a backup that is separate from your main storage, so a single failure or a mistaken deletion is less likely to remove both.
• Every so often, open a few files from the backup to check that they can actually be restored.
• Use strong passwords, and an extra sign-in check wherever the service offers one.
• Give each person who handles records their own login, and remove access when they leave.

Once a paper record has a stored image that is a true and clear copy, made under the record-keeping rules, business.gov.au says the paper version doesn't need to be kept. Check for exceptions before anything goes in the shredder:

• A particular law or rule may require the paper original. business.gov.au says that in that case you must keep it.
• Other organisations may set their own requirements. The ATO recommends checking the record-keeping requirements of every organisation you deal with.
• Some documents matter for reasons beyond the books, such as signed contracts and warranties. If you are unsure, keep the paper and ask your accountant or the organisation concerned.

Shredding the paper doesn't end the need to keep the record. Most business records must be kept for 5 years, business.gov.au says, and some, such as company records, for 7 years, so the digital copy needs to stay readable and backed up for that long.

The ATO also asks you to keep information about any routine you follow for destroying digital records. Shred paper securely, because bills and statements carry bank and personal details.