As the reliance on on-premise IT infrastructure is decreasing, and more businesses are renting cloud applications. To effectively manage their expenses, organizations should start adopting cloud accounting applications for automated, cost-efficient, and competitive financial management strategies.
What is cloud accounting automation software?
Cloud accounting software is an automated accounting application that is hosted on the cloud and accessible over the internet.
Whereas in the olden days accounting software had to be installed on desktops or be connected to a back-office IT infrastructure, all cloud-accounting software requires for use and connectivity is an internet connection.
This goes both ways. The vendor has to make sure that the company’s accounting data is protected on their database (e.g. against DDoS attacks, for instance). The user, on the other hand, has to optimize its security oversight (e.g. being vigilant of malware, cybersecurity attacks, compromised login credentials, etc.)
Thanks to their internet connectivity and integrations, cloud accounting solutions can work alongside a business’ other ERP systems for data collection and exchange.
In practice, for instance, invoice automation software creates an invoice for a good sold. The task of transferring invoicing data to the accounting software has already been created by the developers and adopted by the user.
Through IT orchestration and RPA, that task gets executed, wherein all the information on the invoice is transferred to the sales account, leaving a visible audit trail behind for future reference and verification.
What are the benefits of cloud accounting automation software?
With on-premise solutions, companies have to upgrade their IT hardware (e.g., larger storage discs, higher computing power, larger housing sites, etc.) as they expanded their operations and the data that needed handling. This meant a constantly-rising variable cost model.
However, companies using cloud solutions do not have to worry about data-storage costs, because their data is stored, maintained, and accessed over the internet.
When the need for scalability arises, the company would simply increase its cloud payment plan to cover the greater bandwidth it needs. The same scenario happens when you reach your Google Drive or iCloud’s maximum capacity – you pay extra to get more storage space on the cloud.
Scalability is important in an accounting solution because as the country grows in size, clientele, and processes, it will need more data storage space to house all its accounts’ data. Cloud computing offers a solution to that.
Closely tied to scalability is the cost efficiency of these solutions. Large sums of money that would have otherwise been spent on data servers can now be saved because the responsibility is passed onto the cloud provider.
The other benefit is that there is no unexpected cost that the management should be wary of, such as cloud cost management and repairs following unexpected maintenance.
Moreover, the opportunity cost is lower with cloud applications. If there is an overhaul or maintenance at the data centers, more often than not the news would be out beforehand, giving users time to adjust to decreasing the downtime costs. The same cannot be said of unplanned breakdowns of on-premise infrastructure. In their 2021 Data Protection Report, Veeam found that in 2020, the average downtime for outages was 79 minutes, at an average cost of $85k an hour.
Lastly, these applications do not require IT oversight. So companies do not need to worry about hiring personnel for troubleshoots and repairs. Most solutions have round-the-clock support teams who can be reached for that purpose.
Cloud connection requires the internet. That means no matter where the user is, with a laptop and WiFi, they could access the accounting software to monitor the processes and intervene, if necessary. The advantage of remote accessibility is particularly crucial since the Covid outbreak, with 70% of full-time US workers experiencing some type of remote working in 2021.
This benefit is important for companies with vast accounting teams, consisting of multiple accountants, not all of whom can be expected to come to the office in person. With cloud accounting solutions, companies can expect their finances to be sorted every day no matter where the staff is located.
On a shared Google doc, if a member edits something it leaves a digital footprint it can be traced back, analyzed, and reversed if needed. For the accounting department, a visible trail is crucial for the internal and external auditing for tax and regulatory compliances.
Also, if an inputting error happens – which is unlikely, given that the tasks get executed as defined – cloud computing allows for its reversal and remediation.
In accounting, transparency and hassle-free auditing are of the utmost importance. Digital footprints can ensure maximum possible transparency. In addition, as with anything with numbers, an error higher up the ladder will have a downstream effect. Data footprint allows teams to “go back in time” to pinpoint the error and remediate it.
Data loss prevention
Research has shown that 31% of data losses are caused by hardware failure and 29% by human error. This shows the importance of backing up your data constantly to have access to it once it gets lost.
The problem with manual backups is that people might simply forget to do it. Or after a long day might exhibit negligence to do so. After all, only 10% of businesses back up their data daily. In addition, 93% of businesses that had lost access to their central database for more than 10 days filed for bankruptcy within a year.
The point is it’s paramount to constantly back up your data and to have it instantly recovered in case of accidents. Arguably, the biggest benefit of cloud computing is its automatic retention of data on the cloud regardless of human intervention (think how Google doc saves your writings without you having to manually do it).
In addition, Thomas Siebel in his book, “Digital Transformation” claims that cloud providers offer a 99% data recovery rate in one hour or less. That’s a massive benefit for companies using cloud accounting software.
To say nothing of the operational disruptions that data loss would cause businesses, the executives at the end of each fiscal period need to be given a comprehensive overview of the company’s financial standing.
If the financial data is lost, they would be left with no accurate insight as to how healthy the state of the company is. It’s of utmost importance that companies have access to their financial data because those are what direct the executives’ decision-making process.
For more on finance
To learn more about automation in finance, read:
- What is Intercompany Accounting & How to Automate it?
- Top 7 Use Cases of Process Mining in Finance
- Top 5 Business Outcomes Financial Close Automation
If you are in the market for a fintech solution for your business, head over to our fintech hub, where we have data-driven lists of vendors for different finance processes.
And we will help you choose the best one for your business:
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.
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