Bookkeeping is keeping track, recording, and reporting of all of a business’ transactional data. Bookkeepers lay the groundwork for accountants to analyze the data and create the various financial statements out of the – balance sheet, income statement, cash flow analysis, etc. If the bookkeepers’ numbers are inaccurate, so will be the financial reports.
Organizations can adopt automated bookkeeping solutions that will ensure the accuracy of the company’s books by automating certain bookkeeping tasks. It’s important to note that “bookkeeping solutions” is an umbrella term attributed to different software applications that function under “bookkeeping.” Some vendors might have a comprehensive solution that automates all bookkeeping and accounting tasks in a consolidated platform. Other vendors might specialize in solutions that undertake singular functions, and require interconnection with other ERP systems through EDI to get the job done.
In this article, we discuss the top 4 use cases of automated bookkeeping systems and offer solutions for each.
1. Paying invoices
Depending on the size of the business, there would be numerous invoices to vendors that should be paid on time for business continuity and sustained B2B relationships.
Something as trivial as an electricity bill, for example, should be paid timely for the office to have continuous power. If the business is in the manufacturing sector, the invoices for raw materials have to be paid on time so the vendors can ship them to the receiver. Any mistiming in invoice payment will tarnish the brand’s reputation and put it behind competitors.
Account payable transactions should first be labeled, then verified, and finally paid on time. Bookkeepers can create automated commands on automated accounts payable software. So whenever an invoice is received from the utility companies, they are labeled as “utility,” the invoice amount is entered (see data entry below) on the “expense” chart of accounts, and the transaction is referred to the accounts payable department for approval and processing.
2. Data entry
The record-to-report (R2R) process begins with identifying and entering transactions from the books onto the journal. Therefore, for journal entries to be accurate, the underlying data should be accurate, too. The following are the challenges of manual data entry:
- Entering an amount different than the invoice: the accountant might mistakenly enter an amount on the book that doesn’t reflect the number of the invoice.
- Forgetting to make an entry: especially if the company has lots of high-volume but low-value transactions, some might slip through the cracks and never make it to the books. If this turns into a pattern, the small numbers will eventually add up and will lead to missed reconciliations.
- The menial and time-consuming nature of the task: Before each entry, the transaction needs to be identified and approved. In a manual setting, getting approval for each transaction will slow down the process, productivity, and induce disillusionment.
Bookkeeping automation solutions use RPA that can leverage screen scraping to follow the user’s interactions with the GUI while performing tasks in order to replicate it automatically without further human intervention. Moreover, in a hyper automated and interconnected ecosystem, by leveraging EDI, the bookkeeping automation solution can integrate with a business’ other ERP systems in order to exchange data and make entries.
For instance, instead of submitting paper invoices to the bookkeepers, an invoice generator solution will create a digital version of the invoice. Then through orchestration and RPA, the invoice’s data will be exchanged with the bookkeeping solution, with the latter automatically creating a rule-based entry in real-time, and with a visible audit trail.
3. Handling account receivables
Just as important as paying vendors on time is getting paid on time. Processing and receiving payments are mirrors of each other: there are lots of payments that need processing, each with a different schedule. If getting paid in installments, it’s crucial for liquidity and cash flow estimation that payments are received on time.
Or if there are any time latencies between receivables and closing of the books, the entries for that fiscal period should be adjusted accordingly (i.e. mentioning that a receivable for item X is overdue, but was expected to add Y amount to sales, ceteris-paribus). This will ensure there are not missed reconciliations. This process is called accounts receivable aging.
Accounts receivable automation software automates and streamlines the process. The software automatically logs in the date on which an invoice is sent, records the customer’s data (phone number, email address, physical address, etc.), and creates an entry on the “sales” charts of accounts accordingly.
On the maturity date, the software, through integration with payment processing software and by leveraging workload automation tools, will send customers an email or notification with a payment gateway, politely reminding them of their obligation to pay.
4. Processing payroll
Payroll processing is managing, calculating, and paying your employees’ salaries. There are payroll processing solutions that overarchingly mitigate the issues that we will be talking about, all in a single solution. However, you also have the option of adopting singular specialized applications for mitigating each of the challenges, which are:
Keeping track of all employees
A company might be employing different categories of workers – full-time, part-time, independent contractors, outsourced personnel, temps, and interns. If done manually, keeping track of all employees, calculating their wages (if applicable, see interns), deducting non-paid vacations, adding bonuses, and adjusting for overtime work can be error-prone and time-consuming. No employee likes to get paid their fair share, and it will be uncomfortable to ask them to pay back the extra amount accidentally sent to their accounts.
- Businesses can adopt HR solutions to keep track of all their employees on their payroll.
- There are leave management systems, moreover, that are specifically designed to monitor the leave days of employees, thus taking the guesswork out of the equation.
- Finally, compensation management systems allow for accurate and reliable compensation across the board.
Keeping track of regulations
Tax regulations, most importantly, change all the time. In the US for instance, in 2017, Donald Trump lowered the Obama-era tax cut, which Biden has been trying to reverse since 2021. So it’s important to be constantly informed of any tax rate changes so you can adjust accordingly. And besides, there is not just one employee tax.
In the US, there is federal income tax, state income tax, Social Security and Medicare taxes, some additional medicare tax, state-specific taxes, and a self-employment tax for the independent contractors (and not all are applicable to all). And there are other points of interest, such as insurance and pension deduction that should be taken into account as well. So it’s paramount that this task is done with the utmost accuracy in order to minimize penalties and retributions.
- You can use RPA and web scraping to track online updates on the news for the latest regulations. We have an entire article that discusses this topic in much more depth.
A spreadsheet containing payroll information has crucial information that if revealed, can wreak havoc on the victim. It has their name, address, social security number, tax number, bank account information, salary amount, and more. With YoY increasing data breaches, companies have to use secured applications that are much more difficult to penetrate than a personal computer. Most automated bookkeeping solutions work on the cloud [link], and thereby exhibit a safer security framework.
- Businesses can privileged access management solutions to keep their data accessible to authorized personnel.
- To restrict online threats, cybersecurity solutions would do well for fighting off viruses, malware, and cyber-attacks. Another tool to use would be cybersecurity solutions
Finally, all the payroll data has to be kept on hand and be accessible 24/7. The Fair Labor Standards Act (FLSA), for instance, requires companies to keep the record of their employees for a minimum of three years. If done paper-backed, these records will require up-keep to archive and store.
- For storing, managing, and having future access to your data businesses can leverage storage management software that allows them to manage their existing database, categorize the data based on usage and importance, secure them, and have them accessible for instant use.
For more on finance
If you are curious about learning what other financial tasks are being automated, read:
- Top 10 Technologies Enabling Finance Digital Transformation in 2022
- Increase the Accuracy of R2R With Automated Close Solution
- Finance Automation in 2022: Use Cases, Technologies & Benefits
And before you go, if you believe your business would benefit from a financial technology solution, head over to our fintech hub, where you’ll find data-drive list of vendors for different processes.
We will help you choose the best one tailored to your needs:
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
To stay up-to-date on B2B tech & accelerate your enterprise:Follow on
Next to Read
Your email address will not be published. All fields are required.