Accounting Automation: The 2021 Annual Guide

This is my complete guide to accounting automation for accountants in 2021.

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

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

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

• Automate transactional accounting work like bookkeeping, payroll, etc.
• Use artificial intelligence right now to save you loads of time
• Automate the verification of data quality
• Become an automated fully outsourced 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 accounting automation in your firm, 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 accounting automation:

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

Artificial intelligence (AI): This technology augments and mimics human judgment and behavior in the same way human intelligence works to solve certain problems.

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

It’s not abnormal for these technologies to work in tandem.

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

Time savings

This is an obvious one. The more manual tasks that you can automate, the more time you can save to focus your efforts elsewhere.

Improved margins

If it takes you half the time 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 technology and automation running in the background.

Increased automation typically results in superior customer experiences, which are incredibly important these days.

Faster turnaround time

Because automations run with the click of a button compared to someone having to key in information manually, you can speed up the turnaround time of your deliverables. This is important in a world where people expect everything instantly.

Improved accuracy

If you set up your automations properly, you can effectively eliminate human error arriving from manual transcription. This is incredibly important in a field such as accounting that relies on accurate data.

Cloud accounting software is the hub for all of your accounting automation.

Since this kind of software is online, it’s able to connect to other online software. The benefit here is that you can plug-and-play different apps into your cloud accounting software to customize and automate just about any manual accounting workflow.

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

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 accounting automation.

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

• Manually inputting figures into the system
• Calculating the net pay
• Relaying that info to the client and/or cutting checks themselves.

Yikes.

This is an example of transactional accounting that is very easily automated.

Below you can see a pretty simple video by Gusto which 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 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 errors

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

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

Once integrated, Xavier Analytics 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 through 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 you 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 Receipt Bank acquiring them, I think we’ll start seeing this kind of functionality be brought to the masses.

VerifyIQ is similar to Xavier Analytics 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 firms help their clients with their books, bill pay, payroll, etc., but when it comes to the A/R part of the revenue cycle, they’re invisible.

That’s why I joined InvoiceSherpa, an app that automates the collection of A/R, as an advisor in early 2020 as I believed that A/R was the next logical service offering that accountants can help their clients automate.

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 be automated with software if configured properly.

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 repetitive tasks. Consider how you can move yourself 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 they 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 and the accounting software as it goes through an intermediary. The more links in the chain, the less reliable the connection is.

As such, 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 a client is looking for the most solid banking integration, look for a bank that has a direct integration with your accounting system to maximize the accounting automation 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.

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

Take financial modeling for instance.

You need information about:

• Previous financial 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, you 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 system:

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:

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.

First, you can set yourself up on Clarity to pull in 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.

You’re now starting to see short-term cash 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 cash flow projection and its accuracy.

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

Here’s Xero’s automated cash flow tool:

And here’s the tool in QuickBooks Online:

The great thing about AI and machine learning is that it can process and “understand” large amounts of data.

This is especially important in areas such as audit where auditors have had to sample data instead of scanning the entire ledger.

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

For instance, Canadian-based MindBridge has been one of the original players innovating in the space.

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

Similarly, Inflo uses AI to highlight account balances which include transactions which might pose a higher risk of error or fraud:

While this technology is currently primarily being used in audit it’s easy to see this applying to tax and other advisory-oriented services to help identify risks and opportunities in the data. In fact, some firms are already leveraging this very technology to do so.

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

But artificial intelligence 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, the product is able to more accurately predict what the user is searching for and provide tax guidance suggestions based on several data points: