In this podcast episode, we discuss the best practices associated with having a paperless accounting office.
Benefits of a Paperless Office
First of all, consider the benefits of a paperless office. These days, the big one is having the accounting staff work from home, since there’s no need to access paper in the office. Second, it means getting rid of that paper storage space, which reduces the rent. And third, several people can access the same transaction at the same time, since everything is digital – which is more efficient. In short, yes, you want a paperless office.
So, what constitutes a best practice? Really, it’s any activity that gets you a step closer to having a paperless office. So, I’ll answer the question by describing how to get – or at least, how to get closer to – a paperless office.
Paperless Office Enhancements
Let’s start with payroll. I already talked about this in episodes 126 through 129, but it’s worth summarizing here. You can completely obliterate all paper records in payroll, subject to two items that I’ll get to in a minute.
First, everyone records their hours through either a badge or biometric scanner, or they log in their hours through an online portal. If you do that, there’s no need for time cards. That information automatically loads into payroll processing software, and employees are paid by direct deposit or through payroll debit cards. There are no checks. You can get all three of these functions by outsourcing your payroll processing.
Now, I mentioned that there were two issues with paperless payroll. One is that the human resources department probably maintains all kinds of paperwork on employees, and the payroll staff needs to access it for things like benefit deductions and garnishments. The best bet here is to have the HR people load these documents into a database, so that the payroll staff can access them.
The other issue is that you don’t have to print out copies of anything for archival purposes, but only if the backup system for the accounting database is absolutely bombproof. This means having an off-site backup. I don’t care how robust your in-house backup system is, if its backups are only stored on-site, then you have a problem, because any damage to the building can destroy the backup. Fix it.
The next item is invoicing customers. Going paperless here depends on your customers. Some will accept an emailed electronic invoice that also provides for an electronic payment back to your company. Others have a portal that you can access and load your invoices directly into their system. Which is labor intensive, but at least there’s no paper. But some customers are not helpful. Many of them only accept a printed invoice, for which they have a rigid payment processing procedure. If that’s the way they operate, there’s not much you can do about it. Somebody has to print the invoice and mail it.
Printing customer invoices is maybe the single biggest problem getting in the way of a truly paperless accounting office.
Next up, cash receipts. This is actually pretty easy. Set up a bank lockbox and have customers send their check payments to the bank. The bank scans the checks and deposits them, so you never see the checks. If someone sends a check to your company address, then mail it straight through to the lockbox, so the accounting department never sees it. The cash receipts clerk accesses the bank’s website to see the checks that have just been deposited, and records cash receipts in the accounting system based on that information.
There’s also a possibility of using automatic cash application, which I covered in Episode 38. This approach really only applies if you’re processing thousands of cash receipts every day and have the money to buy some expensive software, so check out the episode if that sounds like your operation.
Next up is payables. If you operate a supplier portal, then have suppliers load their invoices directly into your accounting system. If not, you’ll need to scan all incoming invoices as they arrive and store these files in the accounting system. Whether you can do that depends on your accounting software.
If you can do the scanning, there’s a question about whether to keep the invoices. It depends on the quality of your backup system, which I already covered. If there’s any risk of losing the database, then keep the invoices.
As for expense reports, your accounting software might have a module that allows employees to enter their expenses directly into the system, or you could use one of the expense reporting services, like Concur, to process them for you. Either way, there’s no need for a paper copy of the expense report or any receipts.
So, what about paying suppliers and employees? You can avoid printing checks by using online banking, where the bank issues either an electronic payment or a check. Either way, no checks are produced on the company’s premises.
That covers the main transactions. In addition, there are adjustments to the general ledger, either to make corrections generally or as part of the month-end closing process. In either case, most accounting software packages allow for some amount of narrative text that can be entered along with each journal entry, to explain the reason for it. In some systems, you may be able to include a scanned document. It all depends on the software.
As for the financial statements, it’s usually possible to print them straight to a PDF file, so there’s no need to print them out. And, you can email the PDF files straight to the report recipients.
I’ve saved the hardest item for last, which is incorporating approvals into a paperless office. This means sending documents to people for their approval through a workflow management system. This usually applies to approving supplier invoices, but it could be literally anything, like approvals for complex invoices or maybe for journal entries. Unfortunately, only the most expensive accounting packages have workflow management, so this level of paperlessness is going to be beyond most companies.
In short, it’s possible to operate a completely paperless accounting office, but it depends on the willingness of suppliers and customers to work with you on the project, and it depends on the quality of your data backups. And the amount of money you’re willing to spend on your accounting system. Realistically, most accounting departments fall a bit short of the ideal paperless system.