How Should Businesses Store Financial Documents?

With that in mind, here are some tips on how businesses should store financial documents. 

Check which documents need to be kept in paper format 

These days most documents can be stored in electronic format if a business wishes. There are, however, still a few exceptions. 

If documents do need to be stored in paper format, it can be worth checking if a notarized copy would be acceptable. Even if it’s not, it may be advisable to have a notarized copy just in case something happens to the original. It can also be worth taking an electronic copy of the document as an additional backup. 

Having additional copies of key documents means that you would at least have something to offer if anything did happen to the originals. If you could demonstrate evidence that the original was lost or accidentally destroyed, then a copy might be accepted. 

Follow the 3-2-1 rule used in IT 

In IT, the standard rule of data management is known as the 3-2-1 rule. It means you need three copies of your data, over two media of which one copy needs to be kept off-site. You should almost always be applying this by default to any documents you keep in electronic format. It’s also a handy guideline for any documents you keep in paper format. 

You keep your one production copy, plus one on-site archive copy, plus one off-site copy. The production copy can be in electronic format because it’s being used for work rather than compliance.

The on-site copy can be in electronic or paper format (or both). If you do take an additional paper copy, it’s advisable to have it notarized. Again, this is a simple and affordable precaution against anything happening to the original. The original should be kept in proper archival storage, preferably in a secure off-site location. 

How to store electronic documents 

When it comes to storing electronic documents, there are three key points you need to remember. Firstly, choose your file format with care. Remember, you may need to access the document several years from now. You need to be sure that the format will still be supported. For this reason, PDF is probably the safest option. 

Secondly, you need to choose your storage media with care. If you’re using offline storage, then use media that has a low risk of damage or corruption. This typically means slower solutions such as CDs/DVDs, mechanical hard drives, and tapes. Whatever form of storage media you use, be sure to store it safely. 

If you’re using online storage, (i.e., cloud storage), make sure you’re using a reputable vendor. If you use free cloud storage (e.g., Google Drive), keep a note of your login credentials. Also, remember to log in as often as necessary to ensure the account stays active. 

How to digitize physical documents 

If you have a lot of documents to be digitized, then it’s best to use a reputable digitization service. If you only have a few documents to be digitized, you could do the job yourself. 

If you do the job yourself, it’s advisable to use a scanner rather than a camera. Scanners are literally designed for scanning documents (not taking photos). Most scanners can also be set to save documents to PDF automatically. If you use a camera, you will need to convert a JPEG to a PDF, thus creating extra work. 

If you use a professional scanning service, they will take ownership of checking the scans for quality. You may, however, wish to double-check this yourself. If you do your own scanning, you should use the highest resolution and definitely check the scans for quality. 

How to store physical documents 

If original copies of paper documents need to be kept for legal reasons, then the best place to do so is usually an off-site storage facility. A reputable off-site storage facility will have an ideal storage environment. This will include the very highest level of security, both digital and physical. 

In particular, it will ensure that documents have the maximum level of protection against both fire and flood as well as physical theft. A safe storage facility may also be able to retrieve documents on request. This could be a lot more convenient than having to go to fetch them. 

With that said, having to go to fetch documents is highly unlikely ever to be a major inconvenience. The reality is that most of the time, documents will only be retrieved when they are due to be disposed of. 

If, however, you do get a formal request for the documents, you will usually be given a reasonable length of time to fulfil it. If you keep electronic copies of the documents as well, you vastly reduce the likelihood that these documents will ever be needed in a hurry for urgent work. 

Access control for both electronic and physical documents 

Regardless of whether you store your documents electronically, physically or both, make sure you know exactly what is stored where and who has access to it. Also, make sure that you have a process for transferring access/custodial responsibilities if people move on.  

If you’re a sole proprietor, make sure somebody can access the documents if anything happens to you. This does not necessarily mean death. It could, for example, mean you being ill when the documents were needed. On the same logic, it would also be advisable to make sure that there was at least one person with financial power of attorney for you. 

How to dispose of financial documents 

Electronic documents should be completely wiped from the storage media. Depending on the media you use, you may wish to destroy it after use. Alternatively, you may be able to use a special program to wipe all data completely. 

Physical documents should be cross-cut shredded. As with scanning, if you have a large number of documents to shred, it’s best to get a third-party service to manage this. If you have a smaller quantity, you may be able to do the work yourself. If you do, however, you need to take ownership of doing it safely and effectively.