Paperless chase – how to deal with receipts

I started the quest to become completely paperless in 2000, and by 2005 I achieved my goal. Being paperless is as natural to me as swimming in water is to a fish. I'm a strong believer in the benefits of becoming paperless. We're all becoming paperless; some embrace it, while others have it foist upon them.

Paper is inefficient, but, since we're used to dealing with it, we either don't notice the inefficiency, or we consciously refuse to accept it. Eventually we'll reach a point where everyone realizes how inefficient paper is. At that point we'll all be paperless. I'm not saying we won't have paper around. Rather that we won't rely on paper as a storage medium for information that we need to retrieve later.

One annoying kind of paper that most of us need to retrieve later is the paper receipt. I applaud companies like Apple, who offer paperless receipts delivered by email. Sadly, most places still provide customers with paper receipts. Even more sad: this is not likely to change soon.

I'm really good at scanning my documents so I don't have a problem keeping track of receipts. I don't have a special organization system for my receipts, other than that I scan them all to a folder called 'Receipts' and I name them with the date and a short description (e.g. '2010_08_25 parking receipt'). My system isn't really optimal for two reasons: (1) I'm not really segregating business receipts into their own folder, and (2) when I travel I have to make sure to keep track of awkward little pieces of paper to ensure that I have them when I return (at which point I have to spend time scanning them).

Whenever I travel through large airport hubs I always notice the kiosk that advertises the 'Neat Receipts Scanner.' If I didn't know as much as I did about scanning I'd probably buy one of those devices. But I know that that last thing I need is a special scanner just for receipts. For $400 I can get a Fujitsu ScanSnap (1500 for PC, and 1500M for Mac), which is the best scanner for most of what I'm scanning. It does a fine job all my paper, including receipts.

Having said that, I believe I've now found something that's better and easier than my ScanSnap—at least when it comes to receipts. Let me describe my new system and then I'll tell you about the underlying technology.

Here's a picture of a parking receipt that I got the other day when I parked outside work. When I get this kind of paper I first put it on my dashboard (to ward off the meter maids), and then later I crumple it up and toss it because I hate having stray paper in my car. 

It's for a dollar. And it's a small piece of paper, too small and too much trouble to keep track of.  I hate paper so much that I'd rather get rid of it as quickly as possible. 

But, I have a camera that can take pictures (an iPhone, but it could be any kind of camera phone). So now I take a picture of the receipt. I could email it back to myself and then save it in my folder of 'general receipts.' It would be better if I put this receipt into a system that kept track of my business expenses. After trying a service called Shoeboxed that is now what I do.

You can try Shoeboxed for free (5 receipts) and see how it works. Here's what I discovered. It's an amazing service for anyone who wants to keep track of business receipts. If you have business expenses you need to keep track of, but don't have a scanner (or don't feel like using it for receipts) then this is something you need to check out.

When you sign up you get a couple of email addresses at Shoeboxed.  One for receipts, and one for business cards.  I don't care about business cards, so I'm not going to talk about that, but if you do then you'll like this service even more than I do. Whenever you get a receipt, you take a picture of it with your camera phone and email it to the special address (which you've saved in your contacts to make it easy to get to). A few minutes later you get a confirming email to let you know the email was received and is being processed.

Eventually, the image is processed and the information is extracted. Shoeboxed uses human beings (remember them?) to verify the information displayed in the receipt. This is important because you don't want to have to be checking Shoeboxed's work, right? If the system doesn't make your life easier then it's worthless. So, it's critical that Shoeboxed always gets the right amount, date, and payee. I guess it's possible they make mistakes sometimes, but they've never made a mistake on any of the receipts I've sent them (which is more than I can say for the OCR software of certain products that are for sale in airport kiosks).

So far so good, but that's not the best part. Shoeboxed analyzes the payee and, based on the name, guesses what category the payment belongs in. Then it tags it with a category based on typical business expenses (e.g. travel, food, auto/fuel, etc.). The webpage will show you all of your receipts, starting with the last five expenses.

At the end of the year (or for whatever time frame you choose) you can download all of your business expenses in whatever form you want: Excel, Quicken, Quickbooks, or PDF.

I tested the PDF export, and was surprised at how organized it is. The lead pages contain a summary of all of your expenses with fields for Amount, Payee, Date, and also a Notes field (where you put in additional information such as who you had lunch with, for example). Each expense has a hot link, which if clicked will take you to the page in the PDF where the image of the receipt is.

The image of the receipt is the key to this whole system. Why? Well, let's say you're reaction to this whole explanation is this: gee, that's nice but I have a simpler system; I just save all my credit card statements. That's what a friend of mine told me when I mentioned how cool I thought Shoeboxed was.

The problem with using credit card statements is that they don't contain information about individual items that were purchased at the point of sale. Sure, a hotel bill on your credit card statement will probably work (at least it might according to this IRS information page). But it's clear that the IRS might challenge a credit card statement showing several purchases from, say, a Target store. After all, Target sells a lot of stuff that might not be considered a business expense.  Or at least that's what the IRS agent will likely tell you when they disallow your deduction.

Shoeboxed says that its system is compatible with IRS regulations, and it appears to me that it is. The IRS allows you to keep your supporting documentation in electronic form, but there are certain standards that digital information has to meet. That's what Shoebox says it's doing, and if they're not meeting that standard then I'm pretty sure no one is.

The other benefit to a service like this is that they handle the headache of assuring that proper backup is performed. I'm not worried about my backup system; that is, I don't need Shoeboxed to make sure my receipts are backed up. Most attorneys, and business people, however, are not as adept at backup as they should be. 

For me, the main benefit is the ease of getting receipts into their system quickly and reliably, so that I can quickly get rid of the paper.

The value of this was apparent recently when I took my daughter to college in Athens, and had to stay in a hotel there.  I had the usual receipts that one has in that situation: shuttle service to airport, hotel, plane fare, breakfast meals. If this had been a business trip I could have easily processed my receipts with my phone. In fact, I was testing Shoeboxed when I was on that trip and that's when I discovered how convenient their service is, especially if you have an iPhone as I do.

Shoeboxed's free iPhone application makes the whole process of taking a picture of the receipt and uploading it ridiculously easy. And from within the application you can quickly select several receipts (once they've been processed, which takes about 20 minutes in my experience) and then email them off to whomever you need to present receipts to. I work for myself so I don't need this feature, but I can imagine many road warriors who have to submit expense reports (and probably agonize about it) would love this feature.

In short, I think Shoeboxed is something that many attorneys would appreciate. Certainly it's worth checking out, especially if you have an iPhone 3GS or the more recent iPhone 4 (because the camera works well with close up pictures). The service costs $9.99/month, or $99/year if you pay for a year up front. There are more expensive packages, but the basic package allows you upload 50 receipts per month, and also gives you an initial 250 upload limit for receipts you have hanging around right now.

There are other ways to get receipts into Shoeboxed, such as mailing them in using a postage free envelope that they provide. And that's fine for some people, I suppose. For me, the real power comes from getting rid of paper as quickly as possible. And I know that, if it weren't for Shoeboxed, I wouldn't be keeping track of certain small receipts like the ones I get when I park my car. And I love that it knows what category to put that expense in!

Update: Brooks Duncan also liked Shoeboxed, and penned a much more detailed review on his excellent blog.

Disclosure: I think that Shoeboxed is so useful to many attorneys that I decided to sign up for the affiliate program, which means that if you click on my Shoebox links and then decide to sign up for the service I'll get a small commission. I don't generally sign up for affiliate programs, but I like Shoeboxed a lot. But, you might have a different take, since not everything I like is something that other people appreciate.