Businesses are quickly adapting their operations to the digital environment, and their accounting processes are no exception. Organisations are now rethinking how they're handling their financial tasks, and one approach that they're implementing is cloud accounting technology.
Cloud-based accounting has redefined financial management for modern businesses because it's more flexible and accessible than traditional accounting systems. With this technology, accounting processes have been modernised to meet the current needs of enterprises and businesses.
So, what exactly is cloud accounting? What are its features, and how do they help businesses perform their accounting tasks better? This article explores how cloud accounting works, its benefits, and its application in specific industries.
Cloud accounting allows you to handle your accounting requirements online or manage your financial data over the Internet (in "the cloud"). Unlike dated traditional accounting software, which depends on on-site software installations, hardware, and manual updates, cloud accounting lets businesses access the software anywhere in the world as long as there's an internet connection.
There are four main models of cloud accounting. Each offers features that suit businesses' various needs.
The table below provides an overview of the differences between these cloud accounting models:
Software as a Service (SaaS) is the most common model for cloud accounting. This model operates on a subscription basis, where you can access the accounting software via web browsers. Because of this setup, you can perform various accounting tasks without installing the software or requiring additional hardware and resources.
Additionally, the service provider manages all updates, security, and maintenance, so you don't need to do them yourself.
Public cloud accounting hosts an organisation's system in third-party servers you'll share with other organisations and users. Through this setup, you can access accounting features and perform tasks without having the cost of investing and maintaining physical servers.
This model suits organisations with standard needs at an affordable cost. The downside is that it's relatively less customisable and secure than private cloud accounting. You have limited control over the server since this model is third-party hosted for multiple users.
Private cloud accounting provides a dedicated setup exclusively for one organisation. With this model, you'll have more control over your accounting system, which means enhanced security and customisation options. This setup comes with a premium price for the control, security, and customisation benefits you'll receive.
This cloud software option suits a large industry or enterprise with specific organisational demands that need custom solutions.
Hybrid cloud accounting includes features of public and private clouds to allow businesses to balance control, security, and customisation. An example of this setup would be storing sensitive data in the private cloud while leveraging the public cloud's resources to perform routine tasks.
Cloud accounting streamlines the accounting process; anyone from the department can collaborate and access finance data from any location. This accounting technology also has a simplified interface and intuitive features, so it's easier to use the software and perform accounting tasks. Additionally, cloud accounting ensures stronger data security with built-in features like data backup and disaster recovery.
Let's explore how cloud accounting works by detailing the integration process into the workflow.
The first step involves selecting a cloud accounting software provider that meets your organisation's needs. Consider factors like features, pricing, scalability, and integration capabilities.
Setting up your cloud accounting software includes registering your business details, customising the cloud platform settings, and selecting the features that your organisation needs.
Linking your business's bank accounts to the software enables viewing bank transactions, importing transaction feeds and reducing manual data entry.
If your organisation uses Enterprise Resource Planning (ERP), you can integrate the cloud-based accounting software into the system. This also integrates cloud accounting into your business operations.
Some cloud accounting software allows the integration of third-party software solutions besides bank accounts and ERPs. These applications, like payment gateways, expense management tools, or even e-commerce platforms, add more features and therefore function in your software.
Once you've successfully set up your cloud software, you can transfer your existing data to the platform. This data may include your chart of accounts, past transactions, books, customer details, and vendor information.
Once the cloud accounting system is up and running, you can start creating invoices for customers, tracking payments, and even following up with them for any outstanding amounts.
