Accounting Automation: The 2021 Annual Guide

This is my complete guide to automated accounting for the accounting profession in 2021.

In addition to the basics of accounting automation, you’ll also get:

Actionable new strategies and accounting processes that are working great right now to help you with accounting automation.

In this guide, you’ll learn how you can:

• Implement accounting software for automated accounting tasks like bookkeeping, payroll, etc.
• Use artificial intelligence right now to save you loads of time with automated accounting
• Automate the verification of financial data quality
• Become a fully outsourced automated accounting department for your clients
• Pick banks that provide the most accounting automation capabilities
• And more!

So if you’re looking for ways to leverage automated accounting in your firm’s accounting processes, you’ll love this 2021 guide.

Let’s go!

• Accounting Automation 101
• Automation of Transactional Work is Table Stakes
• Data Quality Accounting Automation
• Automated Fully Outsourced Accounting Departments
• Leveraging Banking Automation in Accounting
• Accounting Automation in Financial Advisory Heats Up
• COVID-19 Pushes Cash Flow Automation to Forefront
• Artificial Intelligence Takes on Larger Role

Let’s look at a few accounting technologies that enable automated accounting:

Robotic process automation (RPA): This new technology mimics human actions to reduce human involvement in repetitive accounting tasks. This kind of technology works well when the expected outcome is the same every time for a particular series of inputs. Essentially RPA allows for automated accounting for rule-based accounting tasks, such as invoice processing.

Artificial intelligence (AI): Used by accounting and finance departments around the world, AI technology augments and mimics human judgment and behavior in the same way human intelligence works to solve certain problems for automated accounting.

Machine learning (ML): Machine learning is a subset of AI technology where we teach the computer to “learn” from experience. The more experience the machine has, the more accurate they’re able to handle automated accounting outside of a strict rules-based accounting management system.

It’s not abnormal for these technologies to work in tandem for the purposes of automating transactional accounting tasks.

Briefly, let me outline the main benefits of automated accounting:

Time savings

This is an obvious benefit of automated accounting. The more manual accounting data entry tasks that you can automate through the software, the more time you can save to focus your efforts elsewhere.

Improved margins

If automated accounting cuts your time in half to perform certain accounting tasks, then it’s only natural to expect that you’ll be incurring cost savings on that work.

Improved customer experience

I’m a big proponent of service offerings that aim to optimize the entire A-Z customer journey.

Take companies like Uber that have made every customer interaction as seamless as possible. Instead of you having to call in to order a cab, you can simply tap a button on an app. Experiences like this are only possible with new technology and automation running in the background.

Automated accounting could likely follow suit and typically results in superior customer experiences, which are incredibly important these days.

Faster turnaround time

Because automation runs with the click of a button compared to someone having to key in financial information entry manually, you can speed up the turnaround time of your deliverables. This is important in a world where people expect everything in real-time. Automation, therefore, provides a greater client experience.

Improved accuracy

If you set up your automation properly, you can effectively eliminate human error arriving from manual accounting data input transcription. This is incredibly important in an industry like the accounting industry that relies on accurate, real-time financial data.

Cloud-based accounting software is the hub for all of your automated accounting.

Since this is the kind that is being done online, it’s able to connect to other online software. The benefit here is automation can help you plug and play different apps in real-time to customize and automate just about any manual accounting workflow.

It’s like the App Store on your iPhone, only for automated accounting software.

As an example, just check out part of Xero’s App Marketplace:

There’s a ton of cloud accounting systems to choose from, but my preferences tend to lean towards Xero or QuickBooks Online. They have the largest app marketplaces which are critical for automated accounting.

Legacy accounting automation software systems usually come with a payroll module. I still see some accounting firms using it even though it involves:

• Manual data entry inputting figures into the accounting management system
• Calculating the net pay
• Relaying that info to the client and/or cutting checks themselves.

Yikes.

This is an example of transactional accounting.

Below you can see a pretty simple video by Gusto that walks through an entire payroll process from start to finish in 31 seconds.

Click play:

For those in Canada, you’ll want to check out Wagepoint which is a great product you can include in your automated accounting tech stack with excellent support:

I think we’re about to see automated file reviews starting to mature and become the norm.

How do I know?

Well, Intuit clearly sees this as important as they announced a “Bookkeeper Review” feature in QuickBooks Online at a recent QuickBooks Connect conference I attended:

Typically before the books are closed, a manager reviews the work of the bookkeeper to ensure data is correct.

The issue here is that:

• The manager typically only reviews a data sample
• The manager’s time is too valuable to be spent searching for accurate data

As data quality is critical, here are a few automated accounting options that you can use right now for file & data quality checks:

After signing up with Dext Precision, previously, Xavier Analytics, you’ll be prompted to add a Xero file:

Once integrated, Dext Precision will scan the file and then display an overview of issues:

As you can see from this demo account, the app has flagged a number of things that a manager typically would have had to do manually, like:

• Duplicate transactions
• Unreconciled transactions
• Dormant accounts
• Old lock dates
• And more…

By clicking into each item, you’ll get a list of things that you might want to action.

Over and above pointing out potential errors, it also provides suggestions for how your finance team can standardize data within your system, like keeping the same supplier coded to the same account.

It’s a pretty nifty way to automate the verification of data within your Xero file to keep things clean.

And with Dext acquiring Xavier Analytics, I think we’ll start seeing this kind of functionality be brought to the masses.

VerifyIQ is similar to Dext Precision but positions itself as a tool for accounting firms to collaborate on and streamline file reviews.

The app hooks up to Xero & QuickBooks Online files and then similarly scans them to try to identify errors or possible issues.

There’s a variety of different tabs that you can look through to check for errors, such as the reconciliation tab below:

Clicking on items will provide suggested actions that are useful for bookkeepers to follow.

The idea is to automate the review aspect of the file on the bookkeeper’s end before sending it over to the manager for the final sign-off.

Most accounting firms help their clients with their books, bill pay, payroll, accounts payable, etc., but when it comes to the A/R part of the revenue cycle, they’re invisible.

My view is that apps like InvoiceSherpa, an app that automates the collection of A/R, is the next logical service offering that accountants can provide via automated accounting to simplify life for their clients.

Effective A/R collections rely on two things:

1. Sending enough reminders for payment on overdue invoices
2. Tailoring reminder messages depending on who you’re sending them to

The above can become automated accounting with the right accounting software.

To see how easy it is, I developed a 10-step process to automate A/R collections using InvoiceSherpa.

Just about any part of the accounting and finance function can be automated if it involves any time-consuming accounting tasks (see RPA – robotic process automation). Consider how you can move one step closer to being a fully outsourced accounting department as your clients are looking for as much support as possible.

One of the claims to fame with cloud accounting software is that it can connect with your bank and credit card to sync your transactions, eliminating the associated manual data entry required.

The problem:

There often isn’t a direct connection with the bank as it goes through an intermediary. The more links in the chain, the less reliable the connection is.

As such, in automated accounting, we often see issues with data syncing due to these indirect bank connections:

• The feeds break frequently, causing re-authentification to be required
• Duplicate transactions are sometimes fed into the software
• Missing transactions can occur

All of the above rely on manual corrective actions.

Direct bank feeds mostly eliminate the above issues.

However:

Direct bank feeds are few and far between.

With over 5,000 banks in the US, here are the banks that provide direct bank feeds for Xero:

Yikes… only 11 banks and almost half of them are neo-banks.

In Canada, it’s not much better:

And the only major bank with a direct feed didn’t receive stellar reviews.

That being said, if a direct bank feed is available or if small business owners are looking for the most solid banking integration, look for a bank that has a direct integration with your accounting management system to maximize the automated accounting potential.

A lot of the above functionality also applies to credit cards.

Take Brex for instance.

The company issues credit cards that you can completely manage yourself online by controlling the types of expenses different cards can spend, the limits, and who gets them.

Once they’re in your employees’ hands, they can simply forward in their receipts to auto-match them to their transactions before pushing all the details over to Xero or QuickBooks for automated accounting.

Certain advisory services require collecting information from various data points and constructing the data in a way that allows you to then provide advice and add value.

Take financial modeling for instance.

You need information about:

• Previous financial reporting information
• Salaries and the corresponding breakdowns per employee
• Upcoming sales pipeline

Gathering and assembling this information to construct your model takes time.

Through the power of cloud accounting software, however, small businesses can leverage some pretty sophisticated integrations to help you assemble your models much more quickly.

One such example is with a financial planning & analytics app called Jirav which helps automate the financial modeling process.

As you can see, it can integrate with many other data points to suck information into the accounting system, providing efficiency in reporting:

With the Gusto integration, you can pull in details of staff costs:

And with the:

• Salesforce integration you can pull in your sales pipeline to model out revenues
• Xero/QBO integration you can pull in actuals

Which can help you to automatically produce your financial model along with a whole variety of data analytics to help add value for your clients:

Advisory services were typically reserved for partners and more senior-level staff, which therefore made them hard to scale.

But with smart software and some automation capabilities, advisory services can be performed by accountants at almost any level at scale to help your clients with decision making.

First, you can set yourself up on Clarity to pull in reports of financial data from your cloud accounting system. Here you can see the app shows you 7 simple KPI’s based on where the business is at now:

On the next screen is where we engage with the client to adjust various parameters. By doing so, we can see the overall impact on cash & profit to get them closer to what their goal might be.

So if someone is looking for an extra 65k in profit for a given period, I can play with the parameters in many ways to achieve that number.

In this example, I increased:

• Revenues by 15%
• Revenue per employee by 10%
• EBITDA by 15%

To arrive at this result:

This then kicks off the next step of the process with a multi-step action plan that staff at any level can complete with the client:

With part of the advisory work being automated and with the other part being streamlined, this is one example of how advisory work can be democratized and scaled to help your clients make better decision making.

You’re now starting to see short-term money flow planning automation baked directly into some of the more popular cloud accounting systems like Xero & QuickBooks Online.

For example, looking at historical information, Xero has a new feature called “Short-Term Cash Flow” which automatically projects bank balances 30 days into the future. It also provides suggested actions to help improve your financial flow projection and its accuracy.

It’s pretty neat and gives everyone access to some levels of cash flow automation.

Here’s Xero’s tool:

And here’s the tool in QuickBooks Online:

The great thing about AI, machine learning, and robotic process automation is that it can process and “understand” large amounts of data to ease decision making by scanning data analytics.

Artificial intelligence in accounting is important, but the adoption of AI is especially important in areas such as audits where auditors have had to sample data instead of scanning the entire ledger.

But now with new technology, firms can let AI scan through the general ledger and identify issues itself.

For instance, Canadian-based MindBridge has been one of the original players in the accounting industry to make use of AI for accounting procedures

Below you can see that their platform has identified a number of risks (bottom right-hand corner) by scanning data analytics in a way that would not be possible without spending a ton of time manually identifying these things:

Similarly, with the use of AI technology, Inflo highlights account balances which include transactions that might pose a higher risk of error or fraud:

While AI technology is currently primarily being used in the audit, it’s easy to see this applying to tax and other advisory-oriented financial services in the accounting industry to help identify risks and opportunities in the data.

Researching tax rules and receiving tax guidance can be a lengthy process.

But AI can help save time in this area.

Thomson Reuters has a product called Checkpoint Edge which allows users to search for tax guidance. Using AI technology, the product is able to more accurately predict what the user is searching for and provide tax guidance suggestions based on several data points: