The complete guide to financial records management

If you don’t manage your financial records wisely, you might wind up with poor data quality overall. That can mean eye-watering losses. Gartner estimates that low-quality data costs businesses an average of $12.9 million per year. Financial records management can trim many of these inefficiencies. Better data storage can also boost productivity and shield your business from costly compliance violations. Start by determining whether your business uses accrual or cash in its accounting. IRS guidance can then help determine the right way to keep records.

Types of financial records to retain

1. Gross receipt records showing the amount and sources of your business income
2. Purchase records showing what you buy and resell to customers
3. Expenses records showing the non-purchase costs of business
4. Travel, transportation, entertainment, and gift expense records tracking special, potentially tax-deductible expense categories
5. Asset records showing when and how you acquired non-consumable business materials
6. Employment taxes records, which must be retained for at least four years

Tools for financial records management

1. Hyland offers automation solutions for easy invoicing. Its Brainware intelligent capture can rapidly digitize documents. At the same time, it makes those documents instantly searchable and extracts key info.
2. Tungsten Automation, formerly Kofax, provides insightful and compliant financial data. Its AP Agility solution automates accounts payable processes. That can reduce costs and tighten internal controls. Meanwhile, its Process Director can improve productivity and eliminate inefficient paper invoices.
3. SmartVault provides secure, easy-to-use online document storage and management. It can automate document workflows, integrate accounting software, and help meet strict compliance standards.

Read more about the fundamentals of financial records management in How to Organize Financial Records: Digitization and Storage Best Practices.

The Chamber of Commerce generally recommends maintaining finance documents for three to seven years depending on the record type, but this may vary across industries, requiring you to keep them for longer.

Retention schedules for common financial records

1. Invoices, receipts, and expense reports: at least three years
2. Tax documents: three to seven years
3. Financial statements and quarterly reports: at least seven years, and ideally indefinitely
4. Contracts and statements of work: at least through the duration of the relationship, and ideally indefinitely

Strategies for financial records management and retention

1. Invest in an intuitive and industry-appropriate document management system. Most document management systems can improve document workflows, regardless of the industry. Some providers, however, design tools and features that cater to specific spheres, such as healthcare or law.
2. Create a timeline for all financial records. A timeline helps track how long to retain each record. That prevents confusion around document lifecycle steps. Further, applying sunset dates to new documents whenever possible can maintain informational clarity.
3. Incorporate security and user permissions features. Your document management system should encrypt data during storage and transfer. This helps to prevent bad actors from intercepting it. It should also incorporate user permission controls to limit access to sensitive information.

Read more about records retention schedules in How Long Should You Keep Financial Records?

What Should You Look for in Financial Document Management Software?

Whatever other priorities your business may have, you want financial records management software that streamlines storage and retrieval, is secure, and can slot into your existing workloads without a great deal of friction. Look for intuitive file structures, metadata tagging, and index and search functions.

Document management solutions can offer cloud storage, too. That powers remote collaboration and improves security, which helps maintain compliance. Finally, they include usability features to accelerate retrieval and productivity.

How to use document management software

1. Map out the document life cycle (creation, storage, retrieval, archiving, and deletion if necessary)
2. Design a standardized filing system with naming and tagging conventions
3. Assign staff to oversee the procedure
4. Audit processes in search of further optimizations and compliance vulnerabilities

Key features for financial document management software

The right financial records management software should have advanced storage features:

• Document tagging, sorting, and searching capabilities
• Flexible cloud storage
• Accelerated document capture via optical character recognition (OCR) and automatic tagging

You’ll want a program that incorporates easily into your workflows:

• Intuitive user experience
• Process automation
• E-signature support
• Version control and rollback

Finally, the software you choose should have strong cybersecurity features:

• User permissions controls
• Data encryption
• Audit trails
• Automatic compliance checks
• Document lifecycle tracking

Read more about what CPAs need to know about financial document management software in The CPA’s Guide to Financial Document Management Software.

How Can You Choose the Best Financial Document Management Software?

There are scores of effective financial document management software solutions on the market. But not all of them are right for your business. First, check a program’s feature set for compatibility. Next, use free trials to test the software for yourself. Finally, examine how your document management system (DMS) supports your staff.

DMS features for financial professionals

• Fast, accurate, and secure document scanning to speed up workflows, with high‑quality digital conversion, smart optical character recognition for searchable data, automated document classification, protected storage, and consistent naming and metadata tagging for effortless retrieval and audit‑ready organization.
• Invoice management and accountant ID validation to prevent missed revenue, with features such as automated invoice capture, smart data extraction, approval routing, and built‑in identity verification to keep billing accurate and on track.
• Strong security controls with customizable user roles, precise access permissions, detailed audit trails, and encryption to keep sensitive financial data protected.

What to consider before buying a DMS

• Budget: Before locking in a budget, try testing different DMS options. Free trials and more affordable price tiers make this possible. Trying out different tools will help workers find the most useful features to them and flag any they don't need. The more time you spend testing, the more confidently you can invest in your DMS.
• Customization: Document management software produces value by trimming workflow inefficiencies. An intuitive interface will kickstart this process. Deep customization takes it over the top, allowing your business to maximize efficiency. Employee feedback becomes easier to incorporate. That accelerates the creation of low-learning curve templates and workflows. Additionally, accessible forms can reduce the chance of human error.
• Scanning volume: Consider how much scanning your business currently executes. How will implementing a DMS affect that scanning volume? If it might balloon, consider upgrading to a more powerful scanner. You can also get software that digitizes text as it scans documents.

Read more about how to choose a financial document management solution in Accounting Document Management Software: What Financials Pros Need to Know.