How long should you keep invoices
In general, you should keep your invoices and other business records for as long as your tax office can request an audit of your tax returns.
In the US, you need to keep your invoices for at least three years — and in some cases, for six years or indefinitely.
In Canada, the UK, and Australia, mandatory invoice retention periods vary between 5 to 6 years.
Regardless of formal requirements, your small business can benefit from storing records for longer periods of time, especially given that electronic storing requires minimal investment and effort.
Types of invoices to keep
There are two invoice types businesses must keep:
Payable invoices
Whenever you receive an invoice from a supplier or a contractor for a product or service you need to pay, you should store the invoice in an electronic format together with all supporting documentation, such as the purchase order (PO) and the proof of payment.
Receivable invoices
Receivable invoices are the invoices you send out to clients for payments they owe you, together with payment information (such as bank account details, for example).
Similarly to payable invoices, store them electronically, bundled with your purchase orders, payment information, and details of any follow-ups you made past the invoice’s due date.
The benefits of retention are numerous.
Diligent record keeping:
- Helps protect you against disputes with suppliers or clients
- Simplifies financial planning and budgeting and gives you an overview of accounts payable and accounts receivable
- Enables you to easily retrieve all details of each action or expense, if needed
- Is essential for tax purposes, including making it simpler to file your next tax return
How long to keep invoices
In short, you should keep your payable and receivable invoices for at least a couple of years — and possibly even indefinitely.
Formal requirements on how long to keep invoices depend on the country.
Here are some examples of record retention policies:
United States
The Internal Revenue Service (IRS) advises business owners to keep all financial records for income, deduction, or credit items on their tax returns, including payroll records, until the period of limitations for that tax return is over.
As a general rule, this period is three years but can be extended to six years if you underreported income, or indefinitely, if you didn’t file tax returns or are deemed to have committed fraud.
Canada
You must keep all financial records and supporting documents for a period of six years from the end of the tax year to which they relate.
United Kingdom
For taxpayers in the United Kingdom, you need to keep business records for a period of at least six years after the end of the corresponding tax year – or longer, in case a transaction is for something that lasts more than six years, covers more than one year, or if you sent your tax return late.
Australia
According to the Australian Tax Office, you need to keep records for at least five years after the date of the transaction.
Regardless of specific formal guidelines, it’s always a good idea to keep your invoices for at least a few years or even indefinitely.
In all cases, retain the invoices of clients and suppliers with whom you still have an active contract.
The best way to do this is to store them electronically, in the cloud:
PandaDoc’s document repository enables you to import, store, and organize all your business documents — including invoices, financial statements, credit card statements, certificates of incorporation, and other legal documents — all in a single location.
You can then use the search and filters to find and retrieve documents quickly and conveniently.
The life cycle of an invoice
Here’s a brief overview of the five stages of an invoice’s life cycle, from start to finish, regardless of where you or your clients or suppliers are located.
We’ve also covered guidelines for the documents you need and how to store them. All solutions we’re mentioning below are available on the PandaDoc platform.
Step 1: A purchase or an intention to make a purchase
The life cycle of an invoice begins before it’s actually created, when the two parties agree on a deal, usually after a proposal or a quote.
Use our purchase order template to speed up the process.
Supporting documents
- Purchase order, or
- Proof of intention to make a purchase (e.g. an email), or
- Purchase confirmation, if the buyer can directly make a purchase from a website or another platform
Storage guidelines
Store at least until the transaction is finalized, preferably indefinitely.
Step 2: Invoice
The product or service is invoiced. Each invoice needs to contain a number of essential elements to be valid.
For more information on this, check out our guide on how to write an invoice.
Grab one of our free invoice templates to make sure you’re covering all bases.
Supporting documents
- An invoice
Storage guidelines
Store for a few years or indefinitely.
Step 3: Follow-ups and reminders
If the buyer fails to make a payment by the invoice’s due date, the seller might need to send one or more reminders.
Here’s how to create an invoice payment reminder, if you need help with this part.
Supporting documents
When following up with clients, always resend the original invoice to make sure the other party has it.
Storage guidelines
Store all follow-ups as supporting documentation for at least a few years or indefinitely.
Step 4: Payment
The payment is finalized via credit card, bank transfer, or another payment method.
Supporting documents
- Bank statements or another proof of payment
Storage guidelines
Store all payment information for at least a few years or indefinitely.
At the end of each month or quarter, you could download your bank statements and store them with your invoices.
Step 5: Tax return
Your next tax return (which you or your accountant may file) reflects the business expenses and income in the tax year.
Supporting documents
- Tax return
Storage guidelines
Store the tax return and related tax documents for at least a few years or indefinitely.
Best practices for keeping invoices
There are a few best practices to keep in mind when storing your invoices (and all other financial documents, for that matter).
Ideally, you should store your invoices:
1. In an electronic format
Electronic records are far superior to paper records, as they take infinitely less space, are much more secure, and, if stored correctly, the risk of losing them is close to zero.
2. For at least a couple of years
As you could see, invoice retention requirements vary from country to country; when storing invoices electronically, it’s easy to keep them indefinitely.
3. Securely
Make sure only authorized users have access to your financial records.
4. In the cloud and locally
Local electronic storage can fail you. Cloud storage guarantees that your documents aren’t dependent on your local computer or servers.
If possible, you should use a combination of both — local storage guarantees you can still retrieve your files even if you lose access to a specific cloud service or if your internet connection is down temporarily.
5. In a way that enables you to search and retrieve them easily
Make sure you store invoices in a database that is easy to search and from which you can pull any document quickly whenever needed.
PandaDoc’s document repository covers all these requirements and enables you to store your invoices safely and reliably for an indefinite period of time.
Start a 14-day trial to see for yourself how much simpler document storage and retrieval can be when you’re equipped with the right tools.