Recordkeeping: Overview, definition, and example
What is recordkeeping?
Recordkeeping refers to the systematic process of creating, maintaining, and storing records and documentation related to business operations, transactions, or legal obligations. These records can include financial statements, employment records, contracts, regulatory filings, and other documents that provide a clear history of a company’s activities and compliance with laws or agreements.
For example, an SMB might maintain payroll records, tax filings, and customer invoices as part of its recordkeeping practices.
Why is recordkeeping important?
Recordkeeping is important because it ensures transparency, accountability, and compliance with legal, regulatory, and contractual obligations. For SMBs, effective recordkeeping provides evidence to support financial audits, resolve disputes, manage risks, and comply with tax and employment laws.
Including a recordkeeping clause in contracts clarifies the expectations for creating and retaining relevant documentation, ensuring all parties have access to accurate records if needed for audits, disputes, or regulatory purposes.
Understanding recordkeeping through an example
Imagine an SMB contracts with a vendor to provide services for a year. The contract includes a recordkeeping clause requiring the vendor to maintain detailed invoices, receipts, and service logs for at least three years. This ensures the SMB can review records for audits or disputes, if necessary.
In another scenario, a franchisor requires its franchisees to keep detailed sales records and provide quarterly reports. The franchise agreement includes a recordkeeping clause obligating the franchisees to maintain accurate records and grant the franchisor access for review during inspections.
An example of a recordkeeping clause
Here’s how a recordkeeping clause might appear in a contract:
“Each Party shall maintain accurate and complete records related to the performance of its obligations under this Agreement. Such records shall be retained for a period of [Insert Timeframe] following the termination of this Agreement or as required by applicable law. Upon reasonable notice, the other Party shall have the right to inspect and audit such records during regular business hours to ensure compliance with the terms of this Agreement.”
Conclusion
Recordkeeping is a fundamental practice for documenting business activities, ensuring compliance, and managing risks. For SMBs, clear recordkeeping policies and clauses provide transparency, protect against disputes, and support regulatory compliance. A well-drafted recordkeeping clause in contracts ensures that all parties understand their obligations, fostering accountability and trust in business relationships.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.