Digital Accounting: Mastering The Transition In 5 Simple Steps

1. What is digital accounting? 

Digital accounting refers to the ways accounting processes are completed using electronic methods. It’s a much more efficient approach than relying on manual data entry and countless spreadsheets.  It involves the use of digital capabilities to manage transactions, recordkeeping, reporting, document retention schedules and compliance. 
Internally created and incoming financial documents are managed, shared and stored in a central location in the cloud or on-premises. This enables authorized users to access documents and manage accounting workflows from the office, remotely or on the road.  

It facilitates automation of routine tasks like invoice processing, document management and workflow automation, making it easier to manage invoice processing, expense management, audits, month-end close and other essential processes. It also helps ensure timely payments are made and records are archived according to federal, state and industry standards.

2. Manual accounting is a thing of the past 

While manual accounting processes have been the backbone of many accounting processes, there are more effective ways of working.  

Manually inputting accounting data is time-consuming, leaving room for error — despite multiple reviews. A transition from traditional procedures to digital ones makes it possible for your company to grow your business efficiently and stay ahead of the curve.

3. How does digital accounting work?

Digital accounting uses cloud-based or on-premises systems to create, transfer, manage and store financial data in a centralized place.  

One of its key features is the ability to integrate your business systems including document management, payroll, enterprise resource management (ERP) and accounting software such as Sage, Xero or QuickBooks. This enables automated data transfers and reduces double data entry, ultimately streamlining the entire accounting process.  

AI and machine learning automate repetitive tasks with features like machine learning powered indexing that extract information about the sender, recipient, amount and creation date.

Digital accounting software can also provide deeper insights into the analysis of financial data to highlight business performance and identify potential areas for improvement.  

4. What are the benefits of digital accounting?

Digital transformation provides numerous benefits to businesses of all sizes. By modernizing your accounts payable (AP) processes, your company can:  

Increase efficiency and save time: Process and manage financial data in real time using an automated system. This ensures that your company makes informed decisions based on up-to-date insights and reporting, enhancing economic performance and identifying any gaps.  

• Mitigate human error: Process automation reduces the need for manual data entry reducing the risk of human error. This increased accuracy means your team doesn’t waste valuable time and effort fixing mistakes. Digitization also automates complex calculations improving the reliability of financial statements and reports. This saves time and leads to better-informed business decisions. 
• Enhance data security: Digital accounting provides enhanced security and routine backups, minimizing data loss or damage risks using encryption against unauthorized access. Paper is susceptible to water and fire damage, as well as misfiling and loss. Those risks are eliminated digitized documents and data safeguarded in secure data centers in the cloud. In any natural or man-made disaster, businesses can easily retrieve their financial data, ensuring business continuity.  
• Automate backup: Automation integrated within digital accounting systems ensures financial data is backed up regularly, reducing the risk of data loss. The enhanced data security and backup provided by digital accounting systems offer businesses peace of mind, knowing that financial data is secure and easily retrievable in unforeseen circumstances.
• Automate invoice processing: Integrating a digital transformation in accounting provides capabilities such as invoice automation, which can have a beneficial impact on invoice ledgers and the invoicing process through invoice reconciliation, as well as automating e-invoices by significantly reducing the time spent on these tasks by employees.  
• Reduce costs: Traditional accounting practices are expensive, and it takes extensive time to complete a single task. Implementing an invoice processing system or DMS can help with digital accounting by reducing the time spent on routine tasks and saving the business money. In addition, transitioning to digital accounting allows you to reduce your reliance on paper-based accounting processes, significantly reducing paper usage, printing costs and waste. 
• Scale your business with ease: A cloud-based system, like a DMS, can continue working without being trained on new processes and methods. At the same time, automation means these systems grow and adapt as the digital world does without disrupting accounting processes. 
• Improve sustainability: Digital accounting enables businesses like yours to reduce their carbon footprint by eliminating the use of paper, physical storage of financial documents and transportation and delivery of paper-based financial documents. This is particularly important for businesses that are committed to reducing their environmental impact, promoting sustainability and shifting to a paperless office.  

5. How does document management enable digital accounting? 

A document management system (DMS) facilitates the organized categorization, storage and retrieval of financial documents. 
Integrating document management with your ERP or accounting software can create seamless workflow. When an invoice is received, it is scanned or received digitally and filed in the document management system. The then the data can automatically be shared with your ERP or accounting software, preventing errors associated with manual data entry. If accounting staff wants to refer to the documentation, it is readily available directly from the familiar interface they are working in. 
Document management systems also include version control which allows accounting staff to track changes and who made them. This keeps you compliant with regulatory requirements and keeps documents accurate and up to date. 
Protecting sensitive financial information is vital. Access controls, encryption and authentication are features of a document management system that help maintain the confidentiality and integrity of financial documents. 

6. Five steps to digitizing your accounting functions

a) Assess current processes, identify business needs and get employees onboard

b) Choose the right digital accounting software or platform  

• Strong digital workflows that offer a process-mapping tool so your team can visualize your processes and offer constructive feedback. 
• The capability to integrate web forms into your workflows to further eliminate the use of paper can improve the user experience and offer a more direct path to overall digitization.
• Remote and mobile capabilities that allow you to capture, share and collaborate from a home office or on the go. Keep a remote workforce in the loop to make sure they don’t miss deadlines.  
• Electronic signatures that confirm the identity of the signer, prove the authenticity of important documents and speed up processes like executing a contract or an acceptance letter from a new hire.

c) Migrate documents and test workflows

d) Train staff and stakeholders on the new system

e) Regularly update the digital system for optimization document the changes

7. Embracing the future of financial management