Technology has transformed the financial industry. In the past, business owners had to hire accountants to record and process financial data manually. Now, you can hire outsourced accounting services that automate financial reporting and simplify your finance and accounting department.
But what exactly is digital accounting and why should you consider it? Keep reading to find out.
What is Digital Accounting?
Digital accounting refers to the creation, representation, and transfer of financial information into an electronic format. Instead of using papers, all accounting transactions are conducted in an electronic environment.
Digital accounting refers to the creation, representation, and transfer of financial information into an electronic format. Instead of using paper, all accounting transactions are conducted in an electronic environment.
This concept stemmed from the need to establish a more efficient tax system. Digital accounting surfaced in 2003 as a project of the federal government to modernize the Tax and Customs Administration (PMATA). Then came the Electronic invoice (NF-e) and the Digital Bookkeeping System (Sped) in 2009. In 2015, the Digital Bookkeeping System Tax, Social Security, and Labor Obligations were introduced.
Now that you know what it is, let’s discuss the benefits of it:
Benefits of Digital Accounting
One of the primary benefits of a digital accounting system is that it provides you with remote access to your company’s financial data. Digital accountants offer cloud-based solutions and digital accounting software packages that let you log into the system from anywhere and at any time.
This is particularly helpful for cash flow management and cash flow is the lifeblood of your company. For efficient cash flow, decision-making is a crucial role. With a cloud-based accounting solution, you can analyze your cash flow remotely and make quick decisions regarding payments, investments, etc.
Read more on why cash flow is so important here
Convenience and Improved Pace of Productivity
Digital accounting provides the comfort of running different automated financial tests on easily accessible data. Professionals save time compiling and presenting reports and numbers to accelerate online transactions.
This increases efficiency and productivity. By automating many of the accounting functions through digital accounting, you can dedicate staff to other essential functions. This means you can potentially generate more revenue with the same amount of resources.
Security and Agility
Cloud-based accounting solutions are an effective solution to outdated, paper-based accounting records. They are also more secure. These solutions come with cloud storage backed by multiple data centers for data backup.
Many rely on SSL technology for data encryption like those used to secure financial information in banks. With a digital accounting solution, you should be able to retrieve or backup your data even if things go wrong.
Easy Invoicing and Payment Tracking
Without keeping up with invoicing and payment tracking, there’s no way to minimize delayed customer payments. Too many distractions can keep you from following up with debtors.
This can adversely impact your cash flow position. A digital accounting system is perhaps the best solution to the problem. It automates the process of sending invoices and payment requests.
Better Integration and Syncing
One of the biggest challenges associated with manual accounting systems is poor compatibility with the other tools used in your business. The best digital accounting solutions integrate simply with other business tools such as the point of sale system, payroll, website order fulfillment, and more.
The cost of these integrations is often zero or negligible. These applications comprise ecosystems of hundreds of business applications that enable data sharing freely.
Facilitates Tax Preparation
Manual accounting practices make it difficult to gather tax-related documents and prepare to file upcoming returns. It also leads to poor financial tracking and makes it difficult to set aside funds for tax payments. Not preparing for tax filing as the deadline draws near poses serious risks.
Digital accounting not only helps you arrange and separate funds for tax payments proactively, it also simplifies the calculations for taxes. This should exempt you from agonizing stress associated with taxation.
The poor financial tracking inherent to manual accounting can cause you to miss tax write-offs or deductions for your company. To avoid overlooking payments you can use for tax deductions, consider switching to a digital bookkeeping and accounting system.
Bank Reconciliation Made Easy
Your manual records might be effective for day-to-day transactions, but figures must also remain consistent with those in the bank statement. Digital accounting solutions come with useful reconciliation tools that simplify tracking errors in transactions and processing as well as to detect theft and frauds.
Depending on the complexities involved in your business, you might be able to find a digital accounting solution that works better for your business than others. Online retail, for example, involves hectic inventory management. You may want to choose an accounting platform with an efficient inventory management system. In other cases, your accounting program can connect to other specialized apps.
With a digital accounting system, your data remains up to date. This puts you in a position to seek financial advice. Using real-time data, a financial expert can analyze the numbers and offer real-time advice on the easiest and fastest way to improve them.
A Streamlined System
As discussed before, one of the disadvantages of managing taxation is that it is hard to store the information in one place. In a manual accounting system, you will have to store information in various places.
Digital accounting systems also store information in a specific area, giving the owners real-time access to essential details and information. In digital accounting systems all critical data — from cash flow to balance sheets — will be accessible.
Accessibility to Important Financial Information
When the need for financial updates comes from a specific department or a faction of the company, the data must be readily available. In manual accounting, presenting the required information according to the needs of the department can be challenging.
The supply chain department needs to provide information related to the turnaround of goods and data so they can process purchase orders and free up operating capital sooner. This is especially important with accounting for eCommerce businesses.
Ease of Use and Improved Speed and Productivity
Accounting software applications are easy to use in comparison to the manual methods. In addition to the ease of use, a business also takes advantage of increased efficiency and productivity with digital accounting.
Digital accounting saves time in processing online transactions since it allows the accounting department to prepare reports and compile facts and figures in minutes.
One of the primary reasons why businesses and companies look for automation and digital operations is because it saves money by minimizing the cost of services. Hiring a professional to record data in-house, regardless of how well trained they are, will cost your company more than a digital accounting solution.
Reliability and Scalability
The most sought-after feature of software and machines is that they don’t commit errors.
Accurate results make automated software and services much more reliable than traditional accounting practices.
Even if humans can produce accurate data, it takes much longer to compile than a machine. Accurate, swift data accumulation and analysis is important. This is because your company needs to rely on accurate data to make critical decisions.
Apart from accuracy, digital accounting systems are popular due to their scalability. As your business grows, your accounting system will require numerous upgrades to support the increase in the scale of operations.
Recording data presents challenges. And with the number of available data standards, it’s easy to understand why.
However, with digital accounting, the software applications are standardized to an accounting system. This makes it easy to use since the user knows the accounting technique the software follows.
Digital accounting is fast becoming the norm in the industry. With the introduction of advanced accounting software, more and more businesses want to implement it into their company infrastructure.
However, many small businesses follow the more traditional route of hiring specialist accountants for day-to-day entries. You cannot blame them for supporting manual accounting procedures. A system that has existed for more than 900 years garners more confidence than a new one.
Whether you’re an e-commerce retailer or any other entrepreneur, Fully Accountable is an outsourced accounting firm that can help you find the right accounting solution. Whether you’re For more information on digital accounting firms, schedule your strategy call today, or answer a few quick questions and get a customized proposal to fit your unique eCommerce business needs now.