How Long To Keep Accounts Payable Records?

Accounts payable is a liability account, and like all liability accounts, its records must be retained for a certain period.

An AP record is a financial document that details the amount of money that a business owes it suppliers or vendors at a given time. A kind of record consists of invoices, bills, receipts of payments, canceled checks, and similar records of business expenditures and purchases.

This kind of information is important both legally and practically for accounts payable records’ retention duration. This guide focuses on AP document retention laws, recordkeeping recommended practices, and strategies for organizing accounts payable files.

Legal Retention Requirements

Companies are required to adhere to federal, state, and local guidelines on the retention of documents, for how long specific financial records have to be maintained. It aids in tax and financial reporting and compliance, as well as in audits or legal cases.

Federal Guidelines

According to the IRS, the following Accounts Payable records must be kept for at least 3 years:

- Vendor invoices
- Expense receipts
- Accounts payable ledger

- 1099 forms from any vendors that rendered service which was over six hundred dollars.

- Documentation that would allow for tax deductions

If an invoice or any other AP document is linked to the tax return, then the IRS necessitates retention for at least 3 years after the filing of the return or 2 years post the payment of the tax whichever time is later.

State Laws

Accounts payable records must often be kept for 3 to 10 years depending on the type of document that was produced. Usually, state sales tax records have to be retained for a longer period, four to seven years in most cases.

Before disposing of AP documents, you need to acquaint yourself with the AP document retention laws in your state because failure to follow these laws will attract penalties in case of an audit.

Best Practice Retention Guidelines

Of course, this timeframe meets legal regulations at the very least, but many specialists in the field of finance and accounts suggest that the records of accounts payable should be kept for a longer time. Here are some best-practice guidelines:

- Vendor invoices: It appears that this company has been in existence for not more than 7 years.
- Expense reports: 7 years
- Accounts payable aging reports: It takes 7 years to build a credit history and it can take up to 2 years to even get approved for any credit card.
- Payment history reports: The average duration of the tenures was 10 years.
- Contracts: If the patent has expired, then the invention is available for use by other parties for a time of 10 years after the expiration date.

Main account records should be maintained for at least 7 to 10 years to support the overall financial position as well as the tax status or history of the company. It also addresses the timelines within which various legal processes such as the filing of possible legal claims such as breach of contract may be initiated.

Organizing Accounts Payable Records

Some retention periods can go as far as 10 years therefore storage and arrangement of accounts payable files need to be effective. Here are some tips:

Categorize Documents
Organization of accounts payable records should be properly arranged into subgroups such as invoices from the vendors, payment vouchers, tax documents, contracts, and reports.

Select the Right Electronic or Physical Storage
Physical copies occupy office space, while electronic ones need to be backed up from one computer to another. Original AP documents can be scanned and saved on the cloud or an external drive for easier filing.

Organize the boxes and folders according to the year of the documents and the type of documents.
For instance, proper labeling of physical storage boxes with signs of the year and type of record makes documents easily accessible.

Create a Retention Schedule
Whereas an AP document retention schedule tells you what AP files you hold and when they can be shredded. This should be done yearly and it should also be ensured that the records that are no longer needed are well deleted.

Assess and Refresh Accounts Payable File Payable Management Annual
It is very essential to reconsider the organization method from time to time since the number of files that accumulate within a few years of business operation may be significantly high.

Accounts payable records can also be properly classified and stored with corresponding labels that facilitate easy retrieval when the documents are needed.

When Is It Possible to Dispose of Accounts Payable Records?

Accounts payable records including the ones that have been held past federal, state, and best-practice retention periods can be subjected to destruction. However, ensure you dispose of the old files as per the company’s policy if it is a vendor or customer’s personal information.

As for the physical papers, it is recommended that organizations purchase a cross-cut paper shredder to minimize the chance of identity theft by dumpster divers. To minimize the recovery or hacking of financial details that exist in the old digital AP files, the records may be erased and rewritten to remove such information.

Upon entering the files you need to destroy some of the AP documents and update your retention schedule to match the new file list. It is crucial to keep the older records stored, but new records should be arranged and stored with easy access for cleanliness in the future.

Key Takeaways On Accounts Payable Document Retention:

- Accounts payable records are required to be retained for between three to ten years and the specific requirement depends on the type of record and the jurisdiction.
- Most of the AP files should be retained for 7–10 years, according to different sources of best practices.
- Organizing and identifying the financial information properly, storing it safely, and disposing of it properly helps in securing the financial documents.
- Document retention schedules should be reviewed successively every time old accounts payable files meeting the destruction criteria are destroyed.

When decision-makers, who are involved in the creation of accounts payable documents, know legal and best practice guidelines on account payable document retention then, the business is in a good position to put in place a documentation system that will help in the safekeeping of these records. This means that the crucial AP data is always readily available in the case of tax reporting, accounting, or any possible future AP audit for an indefinite duration.