Everything You Need to Know About Automated Bookkeeping

Bookkeeping is the activity of keeping track of financial transactions of a business on a daily basis. It is an important part of the accounting process since it records every transaction and reports all activities that impact a business’s financial performance.

What is automated bookkeeping?

Automated bookkeeping is the process of keeping track of financial transactions with the help of computerized accounting systems that use robotic process automation (RPA), machine learning (ML), or artificial intelligence (AI). In other words, automated bookkeeping imitates the human data entry process with the help of technology tools.

Businesses that use automated bookkeeping tools are able to minimize manual errors and reduce the time spent on data entry.
Some well-known automated bookkeeping solutions include NetSuite, Freshbooks, and Zoho Books.

Challenges of traditional bookkeeping methods

If your company uses traditional bookkeeping methods such as manual data entry and spreadsheets to record financial transactions, then you might be facing some of the challenges discussed below:

1. Data entry errors
   In the traditional bookkeeping process, there is a higher possibility of data entry errors since the user has to manually enter similar or even the same information multiple times to the various ledgers and sub-ledgers. This makes the whole process both time-consuming and labor-intensive.
2. Expensive processes
   Traditional bookkeeping is expensive since it requires more labor and resources to complete the data entry process. While the traditional method is less costly if we look at it from an up-front perspective, in the long run, these small expenses can snowball to become large.
3. Physical record maintenance
   In a traditional accounting process, it is important to store hard copies of any financial transaction that takes place between businesses. These copies can get lost or may be stolen or destroyed due to natural disasters, leading to the loss of valuable data and records. Physical records are also hard to manage due to storage and tracking issues. The storage and maintenance of physical copies are also more expensive and challenging.

Benefits of automated bookkeeping

There are several advantages of using automated bookkeeping. We discuss some of them in this section.

1. Minimizes time spent
   Manual data entry requires your finance team to spend several hours on data entry and reconciliation. Accounting automation solutions can help complete the same tasks in a few minutes. Accountants and analysts can use the time saved to focus on more strategic tasks that involve data analysis, financial projections, etc.
2. Reduces manual errors
   It is true that machines are far less prone to errors than humans. Integrating RPA and AI to complete your bookkeeping tasks can help you minimize human errors that happen due to fatigue, multi-tasking, environmental factors, etc.
3. Provides real-time data
   After you integrate the automated bookkeeping process into your system, you no longer have to wait for the bookkeeper to enter the data. The system updates the records automatically as soon as any new data is available. Therefore, you will always be working on real-time information.
4. Streamline your workflow
   Automating your accounting and bookkeeping tasks can help streamline your workflows. These include:

• Credit card and banking information transfer
  To perfectly reflect the banking position of your company, you need to ensure consistency between the debit and credit transactions of all your bank accounts. Automated bookkeeping has the ability to pull transaction history data from the record book instantly.
• Sort transactions into relevant categories
  Machine learning algorithms within automated bookkeeping solutions help you to automatically sort transactions into different categories (e.g. recurring expense, revenue, etc.) based on their financial history. This feature is helpful for sorting high-volume transactions, which otherwise is tedious and time-consuming if done manually.
• Help manage payroll
  Managing payroll manually can be challenging. There are several rules and regulations that must be followed while generating the payment, and if anything goes wrong then the entire process might break down. You can use automated bookkeeping processes to calculate wages and deductions with just a click of a button. An automated payroll system can help you keep track of employees’ compensation along with salaries, bonuses, and commissions. Another advantage of automated payroll is that employees can access their payment information whenever they want.

4 use cases of automated bookkeeping

Manual bookkeeping methods are error-prone, often leading to the need for rework and multiple rounds of reviews. Automated bookkeeping, on the other hand, keeps track of the business’s transactional data and analyzes them, on-demand, to create several reports and financial statements like balance sheets, cash flow statements, and income statements.

Let’s take a look at the top 4 use cases of automated bookkeeping:

1. Data entry
   Identifying and adding transactions to the bookkeeping journal is the first step in the record-to-report process. The initial data entry needs to be correct for the reports and analysis to be accurate.

Automated bookkeeping solutions use RPA to leverage user experience while performing tasks without any human intervention. Bookkeeping solutions can also integrate with the ERP systems to help enter the right data at the right place.

• Paying invoices
  The number of suppliers you work with increases as your business expands. It also results in a higher number of invoices that need to be paid. And the top priority remains to get the open accounts cleared on time to ensure smooth supply chain operations and inventory.

Automated bookkeeping solutions have the ability to create custom commands on accounts payable software. So, whenever an invoice is generated, the accounting software marks the invoice as ‘utility’, and the invoice amount is marked as ‘expense.’ After the verification is completed, the accounts payable department tags them as ‘approved.’

• Managing accounts receivable
  Getting paid on time is as important as paying vendors on time. If you are getting paid in installments, it is important to maintain the cash flow and liquidity of your business. This is where automated bookkeeping comes into play.

Automated bookkeeping software automatically extracts the date of invoice generation and every customer data record. On the date of maturity, the customers will receive a notification from the payment gateway, reminding them to pay before the deadline.

• Payroll management
  Managing the payroll cycle of employees is a crucial finance workflow. You need to calculate and keep track of the working hours of employees. This becomes even more difficult to do manually when employees work remotely or from multiple locations across the country or globe.

Automated bookkeeping solutions can help the HR and finance teams track every employee’s working hours and calculate the pay accurately. They also integrate with leave and tax management solutions that monitor the leave days of employees and tax rates applicable for the different countries/states.

Conclusion

Automated bookkeeping is a small part of finance automation as a whole. Bookkeeping is one of the easiest finance & accounting processes to automate, giving a high return on investments (ROI) within a short period.

It’s the stepping stone to move forward in the future because it will replace the traditional methods of accounting, thus making finance teams more efficient. This advancement in technology can eliminate repetitive accounting tasks, allowing bookkeepers to focus more on strategic activities such as forecasting and analysis.

How HighRadius Can Automate Bookkeeping for Businesses

HighRadius offers a cloud-based Record to Report Suite that helps accounting professionals streamline and automate the financial close process for businesses. We have helped accounting teams from around the globe with month-end closing, reconciliations, journal entry management, intercompany accounting, and financial reporting.

Our Financial Close Software is designed to create detailed month-end close plans with specific close tasks that can be assigned to various accounting professionals, reducing the month-end close time by 30%. The workspace is connected and allows users to assign and track tasks for each close task category for input, review, and approval with the stakeholders. It allows users to extract and ingest data automatically, and use formulas on the data to process and transform it. 

Our Account Reconciliation Software provides an out-of-the-box formula set that can configure matching rules and match line-level transactions from multiple data sources and create templates to automate various transaction processing required for month-end close. Our solution has the ability to prepare and post journal entries, which will be automatically posted into the ERP, automating 70% of your account reconciliation process. 

Our AI-powered Anomaly Management Software helps accounting professionals identify and rectify potential ‘Errors and Omissions’ throughout the financial period so that teams can avoid the month-end rush. The AI algorithm continuously learns through a feedback loop which, in turn, reduces false anomalies. We empower accounting teams to work more efficiently, accurately, and collaboratively, enabling them to add greater value to their organizations’ accounting processes.

FAQs

1. How do you automate bookkeeping tasks?

You can automate your incoming transactions by linking your payment processor accounts to the accounting application. This creates a built-in integration that helps in tracking the income automatically.

2. What are the drawbacks of automated bookkeeping?

One of the major drawbacks of automated bookkeeping is the high level of maintenance required. While the data can be pulled very easily, there is a high chance that it will be miscategorized without proper notes.

3. Why is it important to keep track of your expenses?

It is important to keep track of your business’s expenses as it helps in maintaining healthy cash flow, along with tracking tax deductions, budget overruns, and key cost centers.