Learn about the benefits of digitizing your documents and how to do it.

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As your business grows from a startup into a more established operation, the amount of paper you deal with tends to grow right along with it. Filing cabinets fill up, paperwork takes over valuable space and finding the document you need can become frustrating and time-consuming.

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One solution is to move toward a paperless office. By using digital conversion tools, businesses can turn paper documents into electronic files that are stored in the cloud or on a local server. We’ll walk through what document digitization involves and explain how it can help businesses stay organized, reduce costs and run more efficiently.

What is document digitization?

Document digitization is the process of capturing images of paper documents and converting them into digital files using scanning and capture software. OCR, or optical character recognition, turns those scanned images into searchable, editable text. You may also hear this process referred to as document scanning or document imaging.

Once documents are digitized, businesses can add more information, known as key index fields or metadata, to help better organize and manage files. This helps meet data retention requirements and supports storing documents in a computerized filing system.

After documents have been scanned, checked for accuracy and made editable, many paper originals can be destroyed. Some records, however, must remain in physical form to comply with state record retention laws (such as paycheck recordkeeping requirements) or other legal stipulations.

Tip

The best document management software helps businesses store digital files in one central location, with features like advanced search, security controls and workflow automation to keep documents organized and easy to access.

What are the business benefits of digitizing documents?

Document digitization can bring businesses the following advantages:

• Share documents easily: It’s faster to share digital documents than paper ones. Files can be emailed or shared online, so more than one person or team can access the same document at the same time, which makes workplace collaboration easier, especially for remote or hybrid teams.
• Store information safely: Digitized documents make it easier to store and protect records securely. Digital files can be backed up on remote servers and protected with access controls and security measures. Unlike paper documents, digital files are far less likely to be lost, misplaced or damaged, and they’re easier to archive and manage in an organized way.
• Incorporate digital elements: Scanning allows information to be captured from paper files, films, tapes and other physical media. Data can also be read from barcodes, RFID tags, QR codes or other scannable sources. The scanned information can then be used with document management systems, ERP software, management information system software, the best CRM software and other business applications.
• Save time and money: Digitizing documents eliminates the need to search through file rooms or store paper records in warehouses. Instead, documents can be accessed with just a few clicks. Cutting back on paper use, storage space and manual handling can lead to meaningful cost savings over time. In fact, some estimates suggest that storing and managing a paper document can cost more than 200 times as much as keeping a digital one, underscoring how much businesses can save by going paperless. 
• Improve customer service: Digitized documents can be indexed with key index fields or metadata, making it easier and faster to find the information needed to help customers. Jennifer Graham, co-founder of Total Document Solutions, agrees that quick searches are a major time-saver for customer service teams. “With the benefit of OCR or ICR, the ability to search for key text or information strings comes within seconds,” Graham noted.
• Minimize storage space: Moving away from paper records reduces the need for filing cabinets and storage rooms. “This opens possibilities for repurposing the area for more productive, revenue-generating activities,” Graham pointed out.
• Meet compliance regulations: Some industries require certain records to be maintained in digital form. Document scanning can help businesses meet these compliance requirements quickly and cost-effectively.
• Reduce paper waste: Digitizing documents can cut down on paper use dramatically, helping businesses reduce waste and support a more sustainable business model.
• Increase file accessibility: Digital files can be stored in the cloud or shared securely, so authorized users can access them whether they’re in the office or working remotely. Because the files are searchable and editable, it’s much easier to find what you need.
• Create automation opportunities: Digitizing documents can streamline day-to-day operations by reducing manual tasks. Graham noted that many businesses are surprised by how easily they can automate processes like sorting documents, managing approvals and sending reminders.

Did You Know?

File management best practices include choosing a clear, consistent naming system to make documents easier to find through search. For example, files can be organized by project name or date.

What documents can you digitize?

There’s no real limit to the types of documents you can digitize. That said, if you’re planning a larger effort to convert paper records into electronic files, it helps to start with documents that are used most often or take up the most space, such as:

• Official correspondence
• Financial papers
• Contractual agreements
• Medical records
• HR files
• Bills and invoices
• Survey maps
• Other large documents

Once documents are scanned, the next step is adding descriptive information so they’re easy to identify and retrieve later. Using OCR or ICR (Intelligent Character Recognition) technology, scanned images can be converted into readable text that can be searched, shared and used across different applications.

How are documents digitized?

The following tools can help you digitize your documents.

Multifunction devices

If your documents don’t require high-resolution scanning, a multifunction device you already have in the office may be enough. For example, an office printer with scanning capabilities lets employees digitize paper documents quickly without added cost.

Dedicated scanners

For businesses that scan documents frequently or in large volumes, a dedicated scanner can be a better fit. These devices typically offer higher resolution, faster scanning speeds and more flexibility for handling different paper sizes and document types.

Scanning apps

If you don’t have a scanner or need to scan documents on the go, a smartphone app can be a practical option. It uses your phone’s camera to capture clear images and keep paperwork organized.

FYI

If you use a scanning app for business documents, take time to review its storage options, search features and security measures to make sure it meets your needs before downloading.

Document scanning services

Outsourcing document scanning can make sense for businesses with a large backlog of paper files. Professional scanning services handle the time-consuming work of preparing, scanning and indexing documents, which can help companies digitize records efficiently without pulling internal staff away from other responsibilities.

Here are the different types of document scanning services and some of the use cases they specialize in:

1. Bulk scanning: Bulk-scanning services use high-quality devices to scan large volumes of documents quickly. There is no need to convert each page individually, which significantly reduces the scanning time.
2. Large-format scanning: This type of scanning service specializes in capturing superior-quality images of large physical documents, such as those measuring 54 x 72 inches. You can customize the scanned documents’ color, size, resolution and file type. Examples of such files include posters, maps and architectural plans.
3. OCR processing: OCR processing services provide fully editable scanned image files. OCR technology converts scanned images into text-searchable documents, allowing you to edit text easily without affecting the original font style.
4. Microfiche and microfilm scanning: These services convert data stored on tapes and microfilms to indexable digital files, making it easier to share, store, access and retrieve digital files.
5. Off-site and on-site scanning: Off-site scanning services digitize documents at their facilities. If you entrust classified or sensitive documents to such a service, verify that it passed numerous clearances, such as FBI background checks and fingerprinting. Alternatively, you can choose an on-site service to perform such scans. However, on-site scanning can be slower and more expensive than off-site scanning, as high-volume equipment is usually too large and sensitive to transport to a client location.
6. Medical record scanning: When it comes to paper vs. electronic medical records, there’s no question that electronic records are more convenient and secure. Still, any provider you select to scan medical records must comply with HIPAA laws.
7. HR, accounting and legal: Specialized departments can benefit from document scanning services that securely organize highly confidential employee documents, detailed bookkeeping records, and legal files in one place. Scanned documents can be accessed exclusively by the appropriate department or shared for collaboration when permissions are enabled within the document repository.

Tip

Building a customized Microsoft document management system can be a convenient solution for companies that work predominantly with Microsoft applications.

What are the biggest barriers to digitizing documents?

Small companies often want to go digital but hesitate because of what’s involved — and what’s at stake. Graham noted that small businesses face several common challenges when considering document digitization. “The biggest barrier to convincing a small company to digitize its documents often comes down to a mix of perceived costs, lack of familiarity with the process and resistance to change,” Graham explained.

• Cost concerns: Digitizing documents can feel overwhelming for a small business, especially when budgets are tight. Expenses like hiring a scanning provider, paying for a cloud storage service and not seeing an immediate return can cause hesitation. “Many small companies perceive digitization as expensive due to the cost of scanning hardware, software solutions and cloud storage,” Graham noted. “Some worry about recurring costs like subscription fees for document management systems or data migration services.”
• Awareness of the process: Many small businesses don’t have a clear picture of how digitization works, which can make the process seem more complicated than it really is. Without that understanding, it’s easy to focus on perceived costs instead of the benefits. Graham said educating businesses about the process can help highlight advantages like improved efficiency, stronger security and long-term cost savings.
• Resistance to change: Small businesses may be comfortable with their existing paper-based systems and hesitant to adopt something new. While that’s understandable, Graham said concerns about learning new technology or disrupting daily routines shouldn’t stop companies from taking advantage of the benefits that digitization offers.

What are the greatest risks of not digitizing documents?

Putting off digitization can leave your business exposed to several avoidable risks, including the following:

• Document loss: Physical documents are easy to misplace and vulnerable to damage or human error. “Unlike digital files, physical documents often have no backup, making recovery sometimes impossible,” Graham cautioned.
• Decreased efficiency: Searching for, filing and managing paper documents takes time and can require additional staff just to stay organized. Relying on paper can slow communication, delay decision-making and disrupt workflows. “Many physical filing systems cannot manage version control,” Graham warned. “This becomes especially challenging when a small company needs to produce an ‘official’ record during an audit or legal review.”
• Higher operational costs: Maintaining a paper-based system often leads to ongoing expenses that add up over time, such as:
  • Physical space for filing systems, including office space or off-site storage
  • Office supplies like paper, ink and folders for printing and copying
  • Additional staff time or overtime spent managing paper documents
  • Security measures to protect sensitive physical records
  • Environmental costs tied to paper use and disposal

You know that a budget is an incredible tool for reducing your debt and building your savings. But the thought of creating a budget from scratch can be overwhelming.

It’s possible to start with something simple. The simplest budget, the 80/20 budget, advocates committing 20% of your income to savings and 80% to everything else. Similarly, the 50/30/20 budget has you put 20% into savings, then divides the remaining portion into 50% for needs and 30% for wants.

But if you need something a little more specific and structured than that (but don’t want to commit to a full budget worksheet), there is a happy medium. The following five-category budget allows you to break down your spending into simple, basic categories, so you can see where your spending should line up and make adjustments if necessary. If you follow this budget, you’ll automatically be putting aside a portion of your money to both debt pay-down and savings, helping you reach your financial goals that much sooner.¹

Housing

One of the most important budget categories is what you spend on the place you live. Ideally, housing should take up no more than 35% of your take-home income.

Note

Your housing budget includes the mortgage or rent, plus every other housing-related expense: home repairs and maintenance; property taxes; utilities such as electricity, gas, water, and sewer; and homeowners or renters insurance.

If you live in a high-cost-of-living area, hitting this figure might be more of a struggle.² If you truly can’t trim your housing costs to 35% or less of your overall budget, you must look for ways to trim the other categories of your budget. Or, you may even reconsider your living situation: Could it be time to refinance, downsize, or take on a roommate? The important thing is that you have room in your budget for the necessities of life, including saving for the future.

Transportation

You might love luxury cars, which is fine as long as transportation expenses take up no more than 15% of your take-home income. If you have a car, you also have to account for the maintenance and upkeep of that car—not just the expense of your auto loan, if you have one.

Note

Remember, transportation isn’t just your car payment. It includes everything: gasoline, oil changes, car washes, tune-ups, and car repairs such as a new radiator or timing belt.

Your transportation costs also include the amount you pay for parking, and if you ride public transportation, the amount that you pay for bus, train, or subway fare.

Other Living Expenses

Other living expenses, which are predominantly discretionary expenses, should take up to 25% of your income. This includes recreational activities such as eating at restaurants, buying concert tickets, buying new clothes, going to sporting events, and taking the family on a nice vacation.

Your cell phone plan, cable bill, and other monthly subscriptions also fall into this category, unless you need them for work. Look for ways to cut down on miscellaneous expenses if your spending outpaces your earning.

Savings

The saying “pay yourself first” is a good motto. With each paycheck, budget to save 10% of your pay. You might even set up a separate account that’s less accessible, to reduce the temptation to spend this money; consider putting it in a money-market account or high-yield savings account so you can earn a little interest.

Your savings are predominantly for an emergency fund, retirement, and investments such as a new home or the kids’ future education.

Debt Payoff

Debt payoff should consume up to 15% of your income. This includes your credit cards or student loans. It does not include your mortgage payment or car payment, which are listed under “housing” and “transportation.” It does include any extra payments you’re making toward your mortgage and car loan beyond the minimum.

The 80/20 budget and the 50/30/20 budget both advocate savings rates of 20%, but under these budgets, “savings” included debt pay-down.

In this five-category budget, your savings and debt are listed as two separate categories. With 10% for one and 15% for the other, you’re actually spending 25% (in total) on a combination of savings and debt pay-down.

This is even more aggressive and ambitious than the other two budget models recommend. Use this five-category budget if you would like to create a workable budget that’s slightly more detailed and effective, but not overly detailed or complex.

A debt management plan groups several credit card debts into one payment, cuts your interest rate and creates a three- to five-year repayment plan. 

 

If you’re having trouble paying your credit card bills every month, a debt management plan from a nonprofit credit counseling agency might be the help you need.

A debt management plan is a way to help you pay down credit card debt while saving on interest. It has less of an effect on your credit score than other debt payoff options, like debt settlement or bankruptcy.

What is a debt management plan?

A debt management plan is a type of financial product offered by credit counseling agencies that can help you pay off unsecured debts, like credit cards and personal loans. Secured debts — such as mortgages or car loans — and student loan debt aren’t covered.

A debt management plan lumps your debt payments into a single payment with a reduced interest rate. This gives you a structured path to pay off the debt over three to five years.

There’s no credit score requirement to enroll in a debt management plan. But you’ll need to show steady income that covers both your basic expenses and regular payments toward your debts. 

How does a debt management plan work?

Once you enroll in a debt management plan, a credit counselor will contact each creditor to notify them and make itself the payer on your account. The counselor may seek concessions from each creditor, which can include lower interest rates and monthly payments or no late fees.

Each month, your payment will go electronically to the counseling agency, which then pays your creditors on your behalf.

You’ll likely pay a one-time enrollment fee as well as a recurring monthly fee for each credit account in the plan. Fees vary between agencies (see table below). Even with fees, your overall monthly payment should be lower.

As part of the debt management plan, you’ll need to close any enrolled credit accounts, though you may be able to leave one account open for emergency expenses. You won’t be able to open new lines of credit while you’re enrolled in the plan.

🤓Nerdy Tip

Want to see how a debt management plan works in practice? Some providers maintain examples on their website, using information based on their average client. See an example scenario here, from credit counseling agency Money Management International.

Where to get a debt management plan

Debt management plans are offered by credit counseling agencies. Look for an agency that’s a nonprofit and accredited by the National Foundation for Credit Counseling (NFCC).

These four agencies offer debt management plans nation-wide and are each members of the NFCC. 

Agency	Average fees
American Consumer Credit Counseling	Enrollment fee: $39.Average monthly fee: $25.Total fees for the first month: $64.
Cambridge Credit Counseling	Average enrollment fee: $40.Average monthly fee: $30.Total fees for the first month: $70.
GreenPath Financial Wellness	Average enrollment fee: $35.Average monthly fee: $31.Total fees for the first month: $66.
Money Management International	Average enrollment fee: $38.Average monthly fee: $27.Total fees for the first month: $65.

Once you reach out to an agency, expect a counselor to go over your financial situation thoroughly. They may discuss other options with you, like a debt consolidation loan (more on these loans lower down), in addition to a debt management plan. 

Don’t feel pressured to sign up the same day any program is offered. Take time to think about it.

Is a debt management plan right for you?

A debt management plan works best if you are someone who has overwhelming credit card debt and your debt-to-income ratio is 43% or more. That means your total monthly debt payments take up 43% or more of your monthly income before taxes and deductions are removed.

Consider these pros and cons of debt management plans before making the decision to enroll.

Pros of debt management plans

• Saves on interest: A credit counselor will try to negotiate lower interest rates as part of your enrollment in the debt management plan. Less interest means it’ll be easier for you to pay down debt, since more money will go to the principal. 
• Simplifies debt: Instead of juggling multiple due dates per month, you’ll have only one monthly payment with a debt management plan.
• Gives you a plan: Credit card debt can feel overwhelming, but a debt management plan gives you structure. If you make all payments on time, you know you’ll be out of debt when the program ends.
• Reduces temptation: Having to live without credit cards — and not being able to apply for new credit — might be an advantage if you struggle with overspending.

Cons of debt management plans

• Requires multi-year commitment: A three- to five-year commitment is a long time to keep up with your monthly payment. Before enrolling, make sure you can commit to the payment amount for the duration of the plan. 
• Limits access to credit: Having little to no access to credit cards for up to five years, as well as not being able to open new lines of credit, may be anxiety-inducing for some borrowers.

How does a debt management plan affect your credit?

Your credit score might initially drop, as accounts are closed and you have less available credit. Enrollment in a debt management plan will be noted on your credit report, but it’s supposed to be treated as neutral in credit scoring.

Long term, as you get a handle on your finances, your credit score is likely to climb.

Alternatives to using a debt management plan

A debt management plan is only one debt relief option when debt seems overwhelming, and it might not be the right one for you. Consider other alternatives to debt management plans.

Debt consolidation loans

A debt consolidation loan is a type of personal loan where you use the money from the loan to pay off all your debts at once. You then repay the loan at a fixed interest rate over a set term, usually one to seven years. 

These loans are a good choice if you can qualify for a lower rate than the average rate across your existing debts. Debt consolidation loans for bad credit are available from online lenders and credit unions.

Debt settlement

Debt settlement is the process of negotiating down your debts to a lower amount than you owe. You may negotiate this settlement on your own or hire a third party to help, like a debt settlement company. 

Debt settlement can seriously damage your credit score and it isn’t always successful, so only consider it once you’ve ruled out other debt payoff strategies.

Bankruptcy

Bankruptcy may be an option if your debt exceeds 40% of your income and you don’t have a plan to pay it off in five years. Speak with a bankruptcy attorney first (consultations are usually free), before considering this option.