The adoption of cloud based accounting software has fundamentally changed the way businesses manage their finances and the move away from traditional desktop accounting systems has been faster than most finance professionals would have predicted even five years ago. If your business is still using accounting on a locally installed system, which only works on some computers, requires manual backups and keeps your team working in the office, you are already experiencing limits that cloud accounting was designed to eliminate.
Accounting software has evolved in the same way as most business technology. Originally accounting systems were only manual, paper-based ledger operations. In the 1980s and 1990s, desktop software replaced paper, automating calculations and report generation, but it kept the data locked on local machines. The third and current wave of that evolution is cloud based accounting software, which moves financial data and processing to remote servers accessible through any device with an internet connection.
The practical advantages over traditional systems have become too big to ignore and businesses are moving to the cloud. Automatic software updates eliminate the IT burden of version upgrades. Access to real-time data from anywhere enables remote work and collaboration across multiple locations. With subscription pricing, you swap out big upfront license investments for predictable monthly costs. And the security measures baked into dedicated cloud providers usually blow away those most businesses can provide through in-house IT management of local servers.
The benefits of cloud financial management increase over time. Finance teams that make the switch report faster month-end closings, better visibility into cash flow, stronger collaboration between accountants and business owners and significantly less time spent on manual processes that cloud-based automation takes care of.
What Is Cloud-Based Accounting Software?
Cloud based accounting software is a financial management platform that operates on remote servers owned and managed by the software provider, rather than hardware owned or managed locally by your business. Your team can access it on any device with an internet connection using a web browser or mobile app.
The architectural difference from traditional software is simple but powerful: this is how cloud accounting works. Cloud based accounting software does not require a program to be installed on a specific computer and the financial data to be saved on that computer’s hard drive or a local server. All data is saved in secure remote data centers and the software interface is provided via the internet. Your financial records are held separately from any one physical device. If a laptop is stolen or a server crashes, your accounting data is safe and can be viewed immediately from any other device.
There’s more to the difference between cloud and traditional accounting software than just where data is stored. Traditional software needs to be updated manually, which can interrupt operations and needs IT expertise to do it right. Cloud based accounting software automatically updates without any action from your team. Traditional software is limited in the number of users that can be used simultaneously by the license and hardware. Cloud accounting scales to accommodate as many concurrent users as your business requires. You can’t get traditional software outside your office network without complex VPN configuration. Cloud accounting is built to work wherever you have an internet connection.
Key Features of Cloud Accounting Software
Modern cloud based accounting software includes specific capabilities that leverage the cloud architecture to deliver functionality that traditional desktop systems cannot match.
Real-Time Financial Reporting
With real-time financial reporting, any authorized user can see a correct and current picture of financial performance at any time, rather than waiting for scheduled reports or gathering the data manually. Cloud based accounting software updates all relevant report and dashboard immediately as transaction takes place.
Finance leaders who use real-time reporting in the cloud are more confident and can make decisions faster. They look at the cash position as of this week versus last week. They see the revenue performance of the current month instead of waiting for month-end. They don’t just respond, they identify emerging trends and potential problems in time to act.
Automated Bank Reconciliation
Automatic bank reconciliation connects your cloud-based accounting software directly to your bank accounts through secure bank feed integrations. Transaction data is automatically downloaded from your bank throughout the day and matched against existing accounting records, not as a manual end-of-period process.
Automated bank reconciliation saves a lot of time from the very beginning. At month end, this used to take the finance staff hours to review unmatched exceptions that the system could not resolve automatically — now they spend only hours. Most businesses see a reduction in monthly reconciliation time of 70% or more from the first period after implementation when automating reconciliation within cloud based accounting software.
Invoice and Expense Management
Invoice and expense management in cloud based accounting software generates and tracks customer invoices, manages supplier invoices and handles employee expense claims in one integrated environment. We create the invoices from templates where the customer details are pre-populated. Reminders for payment are automatically sent at set intervals. Expense claims are processed through digital approval workflows, instead of paper forms and manual data entry.
Integration is available for invoicing, expense management and the general ledger, so that each transaction is automatically posted to the correct accounts without manual journal entries. Recording cash receipts, updating accounts receivable and recognizing revenue are natural workflow outputs, not separate manual accounting tasks.
Multi-User Collaboration
Multi-user collaboration in cloud based accounting software allows accountants, finance managers, business owners and external advisors such as tax consultants and auditors to work in the same system at the same time from different locations. Users are able to see current data in real-time that reflects the recent activity of all other users.
This collaboration capability is changing the relationship between businesses and their external accounting advisors. Instead of sending exported spreadsheets or backup files to an external accountant from time to time and waiting for the updated figures to come back, both parties are working in the same live environment all the time. Questions are answered more quickly. Detection of errors is earlier. Tax preparation and audit processes are completed more efficiently because the documentation is already organized in the system.
Benefits of Cloud-Based Accounting Software
The operational improvements that cloud based accounting software delivers produce measurable business outcomes across every finance function.
You can access it anytime and anywhere, which takes away the physical constraints of traditional accounting software. Your finance team does a good job whether they’re in the office, at home, on client sites or wherever. Office closures, travel and remote work arrangements are a natural capability, not a challenge to business continuity as an emergency response.
Accountants, finance managers, operations teams and external advisors all access the same live financial data at the same time, fostering improved collaboration. Getting everyone working from the same current numbers accelerates decision-making. Errors are reduced when more than one qualified person is looking at the same data in real time instead of sequential versions exported at different times.
Real-time data processing and automated report generation replaces the slow manual compilation process, making traditional accounting report production sluggish, and leads to faster financial reporting. Accelerating the month-end close. Board reporting is earlier. Management decisions are made on the basis of current data, not information which is already weeks old by the time the report reaches the decision maker.
Cloud based accounting software provides live dashboard access to receivables, payables, bank balances and projected cash movements, which provide better cash flow visibility. Finance leaders are proactive cash managers, not reactive ones. They always know precisely where the business stands financially.
The reduction in IT costs is the result of the removal of the hardware, software licenses, maintenance contracts and IT labor associated with the on-premise accounting systems. Cloud-based accounting software subscription pricing replaces unpredictable capital expenditure and maintenance costs with predictable monthly operating expenses that scale with business size rather than requiring large periodic investments.
How to Choose the Right Cloud Accounting Software
Selecting cloud based accounting software requires evaluating several factors beyond feature comparison to ensure the platform fits your specific business context.
The tier provides cloud-based accounting software capability that is appropriate for the business size without unnecessary complexity or cost. A sole trader needs different functionality than a 200 person company with multiple departments, entities and currencies. Seek out platforms that are scaled for your current business, but also have upgrade paths as your business grows.
Integration requirements will determine whether the platform integrates with the other systems your business relies on. Before you commit to a platform, make sure you confirm specific integration availability for your payroll system, your ERP, your e-commerce platform, your banking providers and any industry-specific tools your operation requires.
Cloud based accounting software stores sensitive financial data that regulatory requirements and business confidentiality demand be protected rigorously. Security standards need careful evaluation. Ask pointedly about encryption standards, data center certifications, access control capabilities, and the vendor’s security incident response procedures.
Scalability means the platform scales with your business, without a disruptive migration when transaction volume, user count or business structure changes. Align pricing models to projected growth so that scaling doesn’t bring cost surprises.
The quality of customer support affects how fast problems get resolved when the system is up and running. Before you make your final decision on a platform, check the availability of support channels, the service commitments on response times and the quality of the selfservice documentation.
Common Mistakes to Avoid
Businesses selecting cloud based accounting software make predictable errors that create problems after implementation.
Omitting data security in the selection process is a risk that only becomes apparent after a security incident. All cloud based accounting software platforms make security claims. Confront those assertions with exact queries about data encryption, access controls and compliance certifications. Good providers will answer these questions with specifics.
The downside of choosing software with no integrations is that it recreates the manual data transfer burden that cloud accounting was supposed to eliminate. Before you pick any platform, make sure it integrates with the business systems you use. If your accounting software is in the cloud but doesn’t integrate with your payroll or ERP system, then your team has to manually move data between the systems, which takes away the main efficiency advantage of using cloud computing.
If you choose the wrong platform, you may end up with a platform that meets your current needs, but can’t grow with your business. Think beyond the platform you need today, to the platform you will need in three years to avoid a disruptive mid-growth migration.
Conclusion
Cloud based accounting software is the now and the future of business financial management. Cloud accounting blows away traditional desktop alternatives for almost every operational aspect that matters to a growing business with real-time access, automatic updates, security, collaboration and more.
Those businesses that make the leap to cloud accounting consistently experience faster reporting, improved visibility into the financials, greater collaboration between finance and operations, and reduced total IT costs in the first year of adoption. Companies that delay that transition continue to pay the hidden costs of inflexible, location-bound, manually maintained accounting systems that cannot keep up with the way modern businesses actually work.
If your business is contemplating the transition, check out Transitioning to Cloud-Based Client Accounting: Best Practices for practical guidance on moving your financial data and processes to the cloud while maintaining continuity and data integrity throughout the change.
Intersoft ERP provides the complete financial and operational management solution for businesses seeking cloud based accounting software fully integrated with ERP, procurement, inventory, HR, CRM and operations in one connected business management platform. It provides growing businesses with real-time visibility, automation and integration to manage finances with confidence at every stage of growth.
