How to Choose the Right Accounting Automation Tool: What’s Hot and What’s Not

Over the past several years, accounting automation tools have become an essential part of companies of all sizes, as they provide an easy way to manage financial data and automate repetitive tasks for relevant teams.

However, with so many options available on the market, choosing the right one can be overwhelming. This is especially true for businesses currently heavily reliant on manual work or older software and looking to invest in a well-rounded solution that fits their operational needs.

Therefore, in this article, we provide tips on how to choose the right accounting automation tool for your business.

Identify Your Company’s Needs

The first step in choosing the right tool is determining what your company needs in terms of accounting automation. Your accounting process is critical here, and the software you select, based on its capabilities, should fit that process as closely as possible.

You must consult your accountants or finance department before completing this step correctly. However, you shouldn’t solely rely on your accountant or financial staff to tell you which solution to opt for.

While relevant teams will obviously get the most use out of an appropriate tool that automates their workflows, you should also consider other factors, such as price, scalability, and compliance with local tax regulations.

I’ll refer you to this accounting automation guide if you’re unfamiliar with such a solution.

For short, accounting automation solutions cater to companies of various sizes, the number of employees, and the types of transactions they manage. There is no one-size-fits-all approach to accounting.

The proof is in the pudding: researching these basic features for each tool you come across should help you narrow down your options and choose one that is best suited for your business.

Consider Features and Functionalities

Apart from the factors we’ve listed above, you should also consider the different kinds of functionalities you require to support and streamline your financial operations. We have listed some of the major ones below.

1. Project Management and Time Tracking

Accounting automation software that can handle project-based transactions is required if you run a company that works in project management. This type of software enables you to invoice your clients, usually depending on the hours your team spent on project activities. It can also help you charge a flat fee for each project, track payment installments, or even set up project retainer fees.

If you bill by the hour, search for software that allows you to track the time spent on different work tasks with an accurate breakdown of proof of work. You can easily turn timesheets into invoices. To avoid inaccurate invoicing, you should ensure that the accounting system allows you to review and approve timesheets before importing/exporting them as invoices.

2. Accounts Receivable and Payable

No matter the type of business you run, chances are you will require an accounting system with great user experience that allows both accounts receivable, or money you are to be paid by customers, and accounts payable, i.e., money your company owes to its suppliers.

Accounting automation software streamlines AR processing and collection, including making invoices, sending reminders to customers, and collecting online payments. On the other hand, automation tools also keep track of your payables, such as vendor invoices and operational expenditures.

Most tools with these features also provide reminders to ensure that you process all payments promptly.

3. Reconciliation Management

Bank reconciliation is another essential component of most companies’ accounting processes, especially those with a daily influx and outflow of cash, as they need an efficient way of ensuring that all transactions are validated and authorized. Look for software that automatically fetches your bank statements for you.

Nowadays, most accounting tools also allow you to set up custom criteria and bank rules to categorize and match your imported bank transactions automatically. This helps accounting teams to promptly and efficiently reconcile finances and remain audit-ready at all times.

It is crucial to be able to compare your bank statements to your company ledger to detect any anomalies that point to you paying out more money than you should. This process can be time-consuming and prone to human error, but contemporary accounting software can automate the whole process and discover these issues much more efficiently.

4. App Integration

Integrations with other tools in your software arsenal may tremendously increase the efficiency of your accounting software. When one company system can successfully communicate with another, you gain team cohesion and increased productivity.

App integrations are practical because they enable your team members to use several different apps without having to leave the accounting platform. Changes made in an integrated application are instantly reflected in the accounting system, eliminating the need for repetitive data entry.

Accounting software that integrates with your payroll system, for example, makes it easier for your finance team to distribute payments while simultaneously recording them in accounting statements.

Integrating CRM software helps connect your customers’ information to your accounting system. Any changes made in the CRM system are also reflected in the accounting tool, ensuring that your accountants and customer support teams are always on the same page.

Another useful integration is an inventory management system, which allows the accounting software to access inventory data to match purchase orders and automate the reconciliation process.

5. Reporting

Reporting features allow your teams to generate detailed financial reports that provide insight into the financial health of your business. They can also be used to track expenses, monitor cash flow, and measure the performance of your business units.

One of the main benefits of reporting functionalities in an accounting automation tool is that they save time and effort. Rather than manually compiling financial data and creating reports, your staff can simply run the report within the software and have the information readily available. This benefit is advantageous if you need to generate reports regularly, e.g., for monthly or quarterly financial statements.

Reporting features can also be used to comply with accounting and tax regulations. For example, you may need to generate reports showing how your business complies with the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Automated reporting features can ensure that you meet these regulations and avoid penalties or fines.

In addition, reporting functionalities can be useful for forecasting and budgeting. They can help identify areas where you may be over or under budget and help your teams make informed decisions about resource allocation.

6. Cloud-Based or Desktop-Based

While you may believe that cloud-based and desktop versions of accounting software perform the same activities, the two formats can cause substantial differences.

A desktop edition of an accounting software program is normally purchased through a one-off payment. Desktop accounting software may only access data kept on each computer that has the software installed, leaving out the current features and capabilities that come with cloud-based choices. On the other hand, desktop-based accounting tools do not require an internet connection to be accessed.

Cloud-based software syncs with your bank accounts and is accessible from anywhere. It also receives frequent software updates and patches to improve its overall efficiency. Furthermore, cloud-based accounting tools typically come with top-tier security protocols to ensure that sensitive financial information cannot be hacked or tampered with.

Ensure Appropriate Security Levels

Ensuring that your accounting automation tool comes with adequate security protocols is crucial to protect your company’s sensitive financial information and to maintain the integrity of your accounting records. The following are some key considerations to keep in mind:

• Access controls: Make sure that access to your accounting tool is restricted to authorized personnel only. It is important to regularly review and update user permissions to ensure that only necessary staff members have access to sensitive data. You can achieve this through unique usernames and passwords, as well as two-factor authentication (which the majority of accounting automation solutions provide).
• Data encryption: Encrypting sensitive financial data can protect against unauthorized access or system breaches. Look for a tool that uses industry-standard encryption methods to ensure this security level is in place.
• Regular automatic backups: Your accounting automation tool should have the capability to perform regular backups automatically at pre-set times and store the backup files in a secure location.
• Auditing and monitoring: Performing frequent monitoring and auditing exercises on your accounting automation software can help you identify any suspicious activity. For this purpose, you can look for a tool that includes built-in auditing and monitoring capabilities and set up an alert system in case of any unusual activity.
• Software updates: Regular software updates are another vital element that ensures the tool is protected against the latest known vulnerabilities. Opt for an accounting automation tool that has regular, automatic software updates and a transparent policy for security patches and bug fixes.

Remember that data security is an ongoing process that needs to be monitored, reviewed, and improved upon continuously to match the ever-changing threat environment of our digital world.

Conclusion

Choosing the right accounting software can be daunting for businesses of any size, as all major software changes require investing a lot of financial and human resources.

However, by taking the time to apply the above tips, you will be able to find a tool that will help you streamline your accounting processes and increase your team’s overall efficiency.

Be sure to research and test different options before making a final decision so that you can be confident that your financial data is in good hands.

First published on February 6, 2023.