In a Gartner survey about small-business challenges and approaches to technology investments, 70% of respondents from finance and accounting firms said that the technologies they use for the job are critical and highly beneficial.
If you are one of the 30% who think that finance and accounting software aren’t necessary—or have never used it—you could potentially lose your clients. Manual methods, such as using spreadsheets to track accounts, are becoming redundant.
Accounting software is the future as it automates all the tasks involved in making accurate financial assessments.
However, finding the right accounting tool can leave you in a Catch-22 situation—the software is essential but there could be too many features to choose from. In addition, not all the features in an accounting solution may be necessary for your firm.
Therefore, accountants and finance managers who plan to start using accounting software should understand the technicalities of its features first. If you don’t select the right features, or get too many unnecessary ones, your investment will have a low ROI.
In this article, we’ll explore the technical aspects and key benefits of the “must-have” and most notable accounting software features. Understanding these features will help your firm choose the right accounting software.
|Billing and invoicing||
Top features: The 3 core, ‘must-have’ accounting software features
In this section, we examine the three core features of accounting software. When evaluating various accounting solutions, ensure that the vendor offers these three features. We will also look at the key benefits and technical aspects of these features.
General ledger: Records all financial transactions
A general ledger is the heart of all financial transactions in businesses that follow double-entry accounting. These transactions are used to prepare financial statements about cash flow management, accounts receivable (AR), and accounts payable (AP).
This feature is also referred to as bookkeeping.
Our analysis revealed that general ledger is one of the most sought-after features as part of the larger “general ledger and reporting” feature, followed by “analysis and tracking”.
Key technical aspects of general ledger
- Reconciliation: Identifies any discrepancies in general ledger entries by reconciling debits and credits at the end of a financial period.
- Double-entry bookkeeping: Sorts financial information as per the double-entry bookkeeping format to enter debit and credit transactions. These entries are also known as journal entries and organized into two columns—debit (on the left) and credit (on the right)—in a general ledger.
Key benefits of general ledger
- Helps forecast cash flow: Double-entry accounting lets firms gauge their cash flow based on the debit and credit transactions in a ledger. A net positive difference in credit and debit transactions denotes healthy cash flows.
- Assists in meeting financial compliance standards: Recording financial statements in a general ledger is vital for meeting accounting audit standards such as GAAP. If your business is audited by third-party agencies, such as the Internal Revenue Services (IRS), a general ledger will clearly record all your past financial transactions and help you pass the audit.
Accounts payable: Manages high volume of invoices
Whenever you purchase goods or services on credit from your vendors or suppliers, you’re given an invoice. The accounts payable (AP) feature lets you check the payments owed. It facilitates invoice management by storing and collecting multiple invoices in a central repository.
- Advanced image recognition technologies, such as optical character recognition (OCR) and image data capture, integrate with AP solutions so that you can avoid having to manually enter or upload the invoices.
- The State of ePayables 2018 Report found that 59% of businesses will fully automate their AP process as part of their digital transformation strategy. This is beneficial to businesses that receive high volumes of invoices. Automating the steps with accounting software will reduce the time to process every invoice.
Key technical aspects of accounts payable
- Purchase order management: Tracks invoice-related information, such as supplier requirements and details, payment methods, and order details, when you order from vendors and suppliers.
- Sales order management: Manages sales quote pricing for products and services. This makes customers aware of the estimated cost of purchasing after factoring in the shipping costs, discount pricing, and other related expenses.
Key benefits of accounts payable
- Improves invoice processing: Accounts payable eliminates paper-based invoices. The digital format makes it easier to manage a high volume of invoices. This results in faster invoice processing as invoices are automatically sorted based on parameters such as the invoice number and vendor name.
- Provides real-time visibility of cash flow: AP offers dashboards to check the amount owed to vendors and suppliers against your total disposable income. This real-time analysis warns you about any potential incidents of a cash crunch.
Accounts receivable: Keeps tab on money owed to your business
The accounts receivable (AR) feature tracks payments that vendors or customers owe your business. AR sends automatic reminders for payment via emails or SMS messages to vendors and customers, so that they don’t default on the payments.
- Mobile payments have become a key aspect of AR as 27% of consumers aged 18-24 have purchased products and services using their phones.
Key technical aspects of accounts receivable
- Recurring billing: Lets customers subscribe to a specific billing plan for a product or service on regular intervals such as each week, month, or quarter.
- Electronic payments: Links your organization’s payment portal to a customer’s bank account automatically once a credit/debit card is registered.
Key benefits of accounts receivable
- Lets firms track payments: The AR feature ensures that payments from customers or vendors are received on time, so that your cash flow increases.
- Boosts cash flow volume: It helps firms maintain a steady cash flow by sending recurring payment reminders via SMS or email.
Among the many features offered by accounting software vendors, core accounting and financial reporting are the “must-haves”. This is illustrated in the below graph, for which we analyzed phone calls with more than 3,000 potential software buyers from June 2018 to June 2019. The analysis helped us understand buyers’ major business challenges and requirements from accounting software
Notable features: Optional features to be considered against specific business needs
In this section, we look at a few optional features of accounting software that you may want to consider during the software purchase process. We also highlight the technical aspects and benefits of each optional feature.
Expense management: Tracks internal business costs
The expense management feature tracks internal costs incurred by employees for official travel and entertainment.
- In a survey, 71% of respondents state that a key benefit of using an expense management tool was improvements in employee expense reimbursements.
Key technical aspects of expense management
- Receipt management: Includes an expense management module that offers a central repository to store all payment receipts.
- Audit trail reports: Provides an overview of the total expenses to ensure that you meet audit compliance standards when confirming each expense receipt for tax filing.
Key benefits of expense management
- Captures receipts electronically: Receipts could be in the form of images clicked on a mobile phone. Most solutions allow you to organize and store these receipts in a centralized database to further process and analyze the receipts for compliance and audit.
- Improves the processing of expense claims: By submitting receipts in the expense claim portal, the cycle time of approving each claim reduces, as you can digitally manage all the approvals.
Billing and invoicing: Tracks payments from customers and vendors
The billing and invoicing feature can track bills and receipts from customers as well as invoices from suppliers and vendors. This feature is at the core of the AP and AR features as it deals with payments to and from a business.
- Blockchain can automate invoice and billing by directly deducting the payment from the customer and crediting it to your account, without any third-party intervention. Based on a decentralized ledger, blockchain makes it easy to track invoice and billing transactions as one can view each transaction’s history.
Key technical aspects of billing and invoicing
- Customized billing and invoicing templates: Enables accountants to create predefined billing and invoicing templates from a library of existing templates in the accounting software. These templates can be customized to your branding and layout, but always include a few standard parameters such as the serial number, item number, and vendor/customer name.
- Online payment portal: Helps customers and vendors pay for your products and services through an online portal once a bill or invoice is generated. They can select between various modes of payment such as a credit card.
Key benefits of billing and invoicing
- Prevents any late payments: Using SMS and email, the billing and invoicing feature sends reminders to customers or vendors for making bill payments on time. This helps you avoid late payments.
- Automates bill payments with recurring billing and subscription management functionality: The recurring and subscription management functionality (a sub-part of the billing feature) avoids having to force customers into manually initiating the payments in each pay period. The feature automatically debits the amount from their bank accounts when a bill is issued.
Next steps and additional resources
By now, you have an idea about the features to choose when purchasing accounting software. In addition, here’s what you need to do during the whole purchase process:
- Look for accounting solutions based on your business requirements. For instance, if you undertake many B2B transactions, you will require all the core accounting features to effectively manage invoices and billing.
- Test the software’s core and optional features by purchasing or downloading the trial version instead of the complete suite.
- Ensure that the accounting software integrates with other modules such as payroll, AR, or AP. For instance, your accounting software may specialize in expense management but now you need to manage payroll as well. Instead of purchasing a separate payroll tool, look for a solution that integrates with your current accounting tool.
Read on to discover
The results of the survey are based on a Gartner study to understand small-business challenges and approaches to technology investments. The primary research was conducted online during July-September 2018 among 715 respondents in the U.S. Companies were screened for company size in terms of the number of employees (2-249) and enterprise-wide annual revenue (less than $100 million). Respondents had to be involved in purchasing technologies for the organization and hold a position of manager and above in the company.