Updated: Apr 24
Running a business is challenging. Keeping track of business finances can be even more so. In this Financial Protection Toolkit series, we are giving you twelve tools (controls) you can implement in your business to give you better financial transparency and protection. In this post we will cover an often-overlooked control, which conceptually is simple, just not easy to consistently apply.
Require Documentation on ALL Payments
Our experience shows most small businesses struggle to maintain receipts and bills; key documents supporting business purchases. It is understandable. Many small business owners are so busy running their business, the last thing on their mind is keeping track of documentation. Once you have a bookkeeper on staff, they can and should help with this process.
The danger is once you are accustomed to running without documentation, it is easy to continue that way even when you grow your business to the point where employees are authorized (and sometimes not) to spend business funds. Now that you are not purchasing everything yourself, it becomes increasingly difficult to “know” what purchases are happening. This is where a requirement for documentation of all receipts and bills becomes critically important.
Implementing this control is a two-part process:
The first part is communicating with your employees that all purchases (debit card, credit card or on credit terms) require documentation. You authorize your bookkeeper (if applicable) to follow-up with a zero-tolerance policy. They report to you directly should any employee fall out of compliance.
It is important to note that as the owner of the business, you will be the worst violator of this requirement, and this is one of the reasons this process is hard to consistently apply over time. Just keep in mind this is a skill that can be learned and there is a proliferation of tools to help get this information to your bookkeeper for processing.
The second part of this process requires that as the business owner, you MUST review all payments (including documentation going out. Satisfy yourself that purchases are legitimate, necessary, and accurate. If something does not make sense, ask questions.
For bonus points, you can include this step. We work with our clients to scan these documents and digitally attach them to transactions in their online accounting or bill pay system. Another straightforward way to access and review outbound payments which can be viewed anytime and any location.
By itself, requiring documentation on all payments is a good control, but falls well short of the steps needed to really protect your business. For example, if you do not review the bank statement monthly or bank website daily/weekly, you still will not see ACH (electronic) payments that go out. The same is true of credit card purchases. You need these other controls, as well. Included with these controls, documentation of payments is another piece of the internal controls puzzle to eliminate the risk of fraud in your company.
Here is another plus - This process will satisfy documentation required by the IRS!
Would you like a complete list of our Financial Protection Toolkit tips? Grab it below!