Digital Business Records and Signatures Streamline Your Systems
Did you know you can legally keep all business records electronically? The Electronic Transactions Act 1999 lets you store all business records electronically. You may choose to keep some records in hard copy, but most or all of your business records can be stored on your computer or online, which makes streamlining your business systems easier.
A business record is any document that records, validates or explains activities and transactions related to business taxation and superannuation.
A record needs to contain enough information for your bookkeeper, tax agent or the ATO to determine the purpose of the transaction and its relevance to your business.
Business records must contain at least the following:
- The date, amount, and GST, if applicable.
- The purpose of the transaction. For example, this could be a tax invoice for the sale of goods or services, a bill for equipment hire, or a pay slip showing time and wage information for an employee’s pay period.
- Tax invoices under $1,000 must show that it is intended to be a tax invoice, the seller’s identity and ABN, the date of issue, a brief description of the goods or services being sold, the total price and the amount of GST, if any. If the invoice is for a mixed supply of taxable and non-taxable items, you must show these separately.
- Tax invoices over $1,000 must also contain the buyer’s identity (if it’s an individual) or ABN (if it’s a business).
OTM Bookkeepers Melbourne encourage leading edge systems that support sustainable business. Is it time to upgrade your business practices and go digital? Check our information about business systems consulting.
Risks and Benefits of Digital Business Records
The main risk with electronic record keeping is security. You must have reasonable protections for user access and backup systems for all your data in case of deliberate destruction of records, for example, in a cyber-attack, or accidental loss, for example, from a natural disaster.
One of the main benefits of digital record keeping is ease and speed of access. Just like a paper filing system, you’ll need to organise your electronic files in a functional way that makes sense and is easily understood by staff who need to access the records.
For example, if you have a lot of suppliers, set up a folder for each financial year. Then set up sub-folders for each letter of the alphabet and file your documents accordingly. You’ll need to name the documents systematically and consistently so it’s easy to find what you need.
We’ve seen businesses with a substantial number of purchase transactions keeping all their records within their email system without any folder structure in place for emails or attachments. Unfortunately, the lack of any system makes searching for and retrieving the correct document very frustrating and time-consuming!
Another benefit is the integrity of the data, although this could also be a risk if you don’t take care of restricting user access appropriately. This is easy to do with user permissions for individual documents or entire folders of records. If you have manual records, these can be altered or destroyed, and unauthorised people can easily get access. Digital systems, however, can show you an audit log of document alterations.
Access and collaboration are other benefits of going digital. For example, we often use shared folders with clients to quickly provide or receive essential information or documents. It makes our job a lot easier!
Finally, you have the added benefit of saving space and paper – you can get rid of that old filing cabinet full of paper!
Essential Elements of Electronic Record Keeping
Businesses must keep records of all business transactions. These include sales, other income, cost of goods, expenses, asset purchase or disposal, employee documents, payroll records, vehicle expenses and logbooks, loan details, and other records relevant to business activities.
Several principles apply to all business records:
- Keep all records related to starting, running, changing, selling or closing your business.
- If any expenses relate partially or wholly to personal use, make sure to differentiate between business and personal use.
- The information in the records must not be changed and be protected from damage or fraud.
- Generally, you must keep most records for at least five years from the date you submit the form the records relate to. However, other retention periods apply for some documents, so check the ATO information before you destroy old records.
- Business records must be easily accessible if required by your BAS agent, tax agent or the ATO, whether the records are stored in hard copy or digitally.
- Records must be legible and in English or easily converted to English when required.
There are a few principles that apply specifically to electronic business documents:
- The ATO accepts digital copies of records originally issued as paper records. You can photograph paper copies so long as the images are a high enough resolution to be clear and legible.
- Records must not be altered once stored electronically.
- An effective and secure backup system must protect them from unauthorised access.
- If you store digital records using an encryption system, you must provide encryption keys and access when required. The data must also be able to be converted to standard formats.
- Password-protected documents must be able to be unlocked when required.
Attaching Digital Business Records to Xero
In addition to storing all business records digitally, it is best practice to attach relevant documents to transactions in Xero. This makes it efficient for your bookkeeper or tax agent to check the documents if needed.
If you attach documents to Xero transactions, you still need to ensure records are safely stored outside your accounting software; it’s not enough to keep records only within Xero as this does not meet the ATO’s requirements for security and backup.
At OTM Melbourne Bookkeeping Services, we use Dext Prepare for managing bills, expenses and receipts. Optical character recognition and data extraction technology automate much of the process. Dext Prepare automatically attaches documents to transactions in Xero, making it more efficient than manually uploading documents to Xero transactions. Talk to us if you want to learn more and implement Dext Prepare in your business.
Xero can also store documents in Files, which can be useful for non-sensitive documents like bank statements or supplier contracts. Make sure you check users’ permissions before you store documents in Files as standard and advisor-level users can access all documents in Files.
Digital Signatures
The same law allowing the electronic storage of documents governs the electronic signing of documents. However, there’s a big difference between electronic and authenticated digital signatures! Electronic signatures are not verified and can still be forged or falsified. Verified digital signatures have a very high level of embedded security, making using them safe and reliable.
There are great apps out there for the secure signing of documents. Exchanging signed documents becomes fast and seamless as you don’t need to wait for someone to print, sign and scan a copy back to you. With most secure systems, you get notified when someone signs a document you have sent, and it’s easy to send reminders to them if you are waiting on an authorising signature.
Authenticated digital signatures offer excellent security; in fact, they are almost impossible to forge, unlike handwritten signatures. Cyber security is a big topic in its own right, but digital signatures can be part of your strategy to minimise cyber risk.
Use digital signatures on employment agreements, contracts, engagement letters and government authorisations.
Go Digital!
We encourage you to consider improving your business administration with digital signatures and record keeping. If you’re only storing a few records electronically, it could be time to move everything to a digital format. Check our article Do You Have the Right Business Systems and Technology to Scale for Success?
Digital business records is another way to improve your systems towards efficiency, growth and sustainability.
If you’d like to learn more about digital business tools like Xero and add-on solutions, contact us so we can help get your systems equipped for success.
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