8 steps to Automate Your Accounting Process in 2024

20 years ago, it was thrilling to use VLOOKUP formulas in Excel to make the accounting cycle a bit less manual, but the business impact of Excel – which was massive – pales in comparison to how intelligent automation is changing the accounting function at this very moment. 

Accounting automation involves the automation of manual tasks that are part of the accounting cycle and beyond. What if the entire invoicing process could be automated? What if account reconciliation could happen without your accounting team lifting a finger?

Those ideas that seem too good to be true are realities in many organizations today, thanks to accounting automation. By harnessing the power of artificial intelligence, machine learning, and other advanced technologies, the automation of the accounting process is saving businesses time, improving the level of service they are able to give their clients, and even shifting how the accounting function supports a company. 

We spent too long relying on clunky Excel files and slow ERP reports; it’s time to automate accounting processes and get rid of tedious, manual tasks and allow your accounting teams to focus on strategic business priorities instead. 

What is Accounting Automation?

Accounting automation is designed to streamline and expedite accounting processes by automating manual tasks. Also known as automated accounting or computerized accounting software, these systems play a crucial role in enhancing efficiency within the accounting team's workflows. 

Accounting automation is a multi-layered concept but put simply, it centers around utilizing software and cutting-edge technological tools to completely automate accounting action items. Automation in accounting is yielding amazing results in all areas of the function; payroll, accounts payable, procurement, and even the month-end close tasks are completed quickly and accurately, often with no human input at all. 

Challenges of Manual Accounting

Manual accounting poses several obstacles:

1. Human Error: Increased risk of inaccuracies due to manual data entry.
2. Time-Consuming: Labor-intensive tasks divert resources from core activities.
3. Limited Scalability: Inefficiency hampers growth and expansion efforts.
4. Tracking Changes: Difficulty in maintaining version control and tracking alterations.
5. Delayed Insights: Lack of real-time financial information affects decision-making.
6. Compliance Risks: Higher chances of non-compliance with regulatory standards.
7. Security Concerns: Susceptibility to security breaches and data breaches.
8. Dependency on Individuals: Reliance on skilled personnel leads to vulnerability.
9. Analytical Challenges: Limited tools for in-depth financial analysis.

Overcoming these challenges often involves transitioning to automated accounting systems and leveraging technology for streamlined processes and improved efficiency.

Automated Accounting Use Cases: The Top 8 Accounting Tasks Businesses Can Automate

There are many ways to start using automation in accounting, the most important thing is to START. First, take a look at your accounting function and determine a list of 5-10 time-consuming processes that are done in the same way week over week or month over month. Those will be some of the low-hanging fruit that can illustrate to leadership and your accounting team how valuable accounting automation is without requiring a massive lift upfront.

Some of the main use cases for automated accounting are accounts payable, accounts receivable, month-end close processes, expense management, internal audit, cash flow forecasting, payroll, and procurement. Let’s examine each one to help you identify the best starting points in your organization.

Accounts Payable

The accounts payable function is central to accounting; paying bills, managing debts, and building relationships with vendors are just a few of the major focus areas for AP teams. With invoice processing automation software and AP automation software, all of those action items can be automated. When your AP experts have more time on their hands, they can spend more time analyzing spend, negotiating more favorable payment contracts, and supporting broader accounting priorities. 

Accounts Receivable

On the flip side, accounts receivable is in charge of collecting cash from customers. Monitoring AR turnover, analyzing bad debt balances, and notifying customers of upcoming payments often take a lot of time from your team’s day. However, with technologies like Nanonets on the market, all of those things can be done in a matter of seconds. It’s not value-add to have an experienced accounts receivable employee on the phone chasing down a late payment; their time could be better used if that was taken care of by automation in accounting. 

Month-End Close

The month-end close process takes far too long. With many organizations spending more than a week to close the books, by the time the focus shifts to the current month, it’s too late to improve financial practices or build data-driven reporting capabilities. Caught in a constant cycle of “catching up” those involved in the month-end close process don’t just want automated accounting software, they need it. Posting to the general ledger, reconciling all accounts, and even creating journal entries can benefit when you focus on automating accounting. 

Expense Management

 Cutting costs is one of the most effective ways to boost profit margins, but without automated accounting software that can track spending, provide insights on where to reduce expenses, and output real-time leadership reports to create transparency, expense management can be tricky. By automating accounts payable functions, expense forecasting accuracy increases, giving finance leaders the chance to change course as necessary.

Internal Audit

 Companies, especially those in the public sector, spend a lot of time and money on the internal audit function. Sending around IA professionals to assess the reporting accuracy of various divisions within the organization is time-consuming and costly. With automated accounting, internal audits can be conducted remotely; the technology can flag out-of-place transactions, monitor account balances, and highlight reporting errors before a human auditor can even open their laptops.

Cash Flow Forecasting

 Cash flow – which measures incoming and outgoing cash – can mean life or death for a business. During an unexpected business downturn, having enough cash on hand, AKA liquidity, allows businesses to continue operations. Without more incoming cash than outgoing cash, your business lacks liquidity and faces unnecessary risk. Through the automation of the accounting process, assessing cash levels and forecasting future cash flow can be done instantly. You can mess around with different business levers and test multiple scenarios to get a picture of how you should use cash today to benefit your business in the future. 

Payroll

More or less, payroll is exactly the same process every single month. Whether your employees are hourly or salaried, automate accounting to seamlessly analyze the amount owed to each employee, prepare checks or direct deposits, send payments out for approval, and even disburse the funds to employees. Repetitive, regular processes are the best candidates for automation, and payroll is at the top of the list. 

Procurement

Managing the procurement process and leading the procure-to-pay activities isn’t something that happens in a silo. It requires collaboration between accounting and the procurement team, but with automated accounting tools, many components of the procurement process can be streamlined. Supplier onboarding, sending purchase orders, and paying invoices are all key components when procuring supplies or raw materials. Accounting automation software can take all of these items off of your procurement team’s shoulders.

How to Automate Your Accounting Processes

Automating your accounting processes can streamline your operations, save time, reduce errors, and provide valuable insights into your financial health. Here are the key steps to successfully implement accounting automation in your business:

1. Assess Your Current Processes

Begin by evaluating your existing accounting processes. Identify repetitive tasks, manual data entry points, and areas prone to errors or inefficiencies. Understanding your current workflow is crucial for determining where automation can make the most significant impact.

2. Set Clear Objectives

Define your goals for automation. Whether you aim to reduce processing time, improve data accuracy, enhance reporting capabilities, or increase productivity, having clear objectives will guide your automation strategy and measure its success.

3. Identify Automation Opportunities

Identify specific tasks and processes that can be automated. This may include invoice processing, expense tracking, payroll management, financial reporting, reconciliations, and more. Prioritize these tasks based on their impact on your business and the feasibility of automation.

4. Research Automation Solutions

Explore the various automation tools and software available in the market. Consider factors such as compatibility with your existing systems, scalability, user-friendliness, features, and cost. Look for solutions that offer customization options to tailor the automation to your unique business needs.

5. Develop an Implementation Plan

Create a detailed plan outlining the steps required to implement automation. Assign responsibilities to team members, establish timelines, and allocate resources accordingly. Consider conducting training sessions to ensure that employees are comfortable using the new automated processes.

6. Test Automation Workflows

Before fully integrating automation into your accounting processes, conduct thorough testing to identify any potential issues or bugs. Test the automation workflows with sample data to ensure accuracy and reliability. Make necessary adjustments based on feedback and testing results.

7. Roll Out Automation Gradually

Implement automation gradually to minimize disruption to your business operations. Start with one or two processes and gradually expand automation to other areas as your team becomes comfortable and confident with the new system.

8. Monitor Performance and Make Improvements

Continuously monitor the performance of your automated processes. Track key metrics such as processing time, error rates, cost savings, and productivity gains. Use this data to identify areas for improvement and refine your automation strategies over time.

By following these steps, you can successfully automate your accounting processes and unlock the numerous benefits that automation offers to your business.

Accounting Process Workflows

Accounting process workflows are structured sequences of tasks ensuring efficient financial management. Here's a concise breakdown:

1. Recording Transactions: Inputting financial activities into the accounting system. For instance, entering sales invoices and purchase receipts into accounting software like QuickBooks.
2. Classification and Categorization: Sorting transactions into relevant accounts. For example, categorizing a purchase receipt for office supplies under the "Office Expenses" account.
3. General Ledger Management: Posting transactions to the central ledger. After categorizing transactions, they are recorded in the general ledger to maintain a comprehensive financial record.
4. Reconciliation: Checking records for accuracy against statements. Reconciling bank statements with accounting records to ensure all transactions are accounted for and match.
5. Financial Reporting: Generating key financial statements. Producing reports like income statements and balance sheets to provide insights into the organization's financial health.
6. Audit and Compliance: Ensuring adherence to regulations. Conducting regular audits to comply with legal requirements and internal policies.
7. Analysis and Interpretation: Assessing financial data for insights. Analyzing trends in expenses or revenue to make informed business decisions.
8. Budgeting and Forecasting: Planning future financial goals. Creating budgets based on past financial data and forecasting future revenues and expenses.
9. Continuous Improvement: Refining processes for efficiency and accuracy. Implementing feedback mechanisms to improve workflows continuously.

These workflows enhance financial control, reporting, and decision-making within organizations.

Benefits of Accounting Automation

It’s true, accounting automation can go poorly when an organization doesn’t implement new tools and processes thoughtfully. But, when done correctly, the benefits of automation in accounting are endless. Some of the biggest wins are:

Time Savings

 When applied in finance and accounting functions, automation can save more than 25,000 hours per year, according to Gartner. This doesn’t even include generative AI, machine learning, and data modeling capabilities. By automating accounting, you will be giving time back to your accounting and finance employees.

Increased Productivity

With the extra time available, accounting teams can do more. Beyond that, by collaborating with technology, these same teams can do more with less. It will take fewer people to do the work that used to take a whole team multiple days. Gone are the days when accountants were constantly drowning in their to-do lists; by leaning on automated accounting processes, they can better direct their energy, work optimally, and even be happier at work.

Reporting Accuracy

Human error is an inevitable part of accounting today. Incorrect data entered into a computer system can cause major downstream challenges. With computers doing the work, or at least checking it, financial reporting accuracy will skyrocket. Fewer mistakes mean less time correcting them; it’s a win for everyone.

Financial Lift

All the time savings and improved accuracy result in a real, financial impact. With better visibility to accounting trends, your leadership team will be equipped with the information needed to make better business decisions, offer an improved customer experience, reduce costs, increase revenue, and enhance the net income of your organization.

Challenges in Automating the Accounting Process

Although the benefits of automating accounting are plentiful, the transition to a technology-centric finance function does not come without challenges. First, many tools on the market won’t deliver what they promise. Finding the right accounting software for your business is key.

Next, many organizations struggle to drive adoption of automated accounting. Accounting and finance teams are weary of technology taking over their roles, but that never was the goal. The goal is for humans and software to work together toward optimized performance. Accounting automation software is meant to make the lives of accounting professionals easier; not replace them.

The last challenge we’ll focus on today is cybersecurity. Is your IT infrastructure structured well and secure enough for new technologies to enter its ecosystem? Especially with financial data, cybersecurity is paramount to the overall success of automation in accounting.

Picking the Right Automation Software for Your Business

As we mentioned, you’ll need to take plenty of time when selecting your accounting automation software. Comb through all available options, weigh the pros and cons, and consider the following: 

• Does the solution have the features and capabilities you’re looking for? If you want to boost reporting standards but the platform doesn’t offer customized reporting, it’s probably not the one for you.
• Will this new platform integrate well with your current ERPs and other business systems?
• Does it address the specific workflows and processes you’d like to automate?
• Is it the right price point for your business?
• Will your current employees be able to learn to use it? Is it too technical?

This is just the start of the list of questions you should be asking when reviewing automated accounting software. Be honest with what your needs are, where your business is in its current state, and how potential solutions can bridge the gap.

Step into the Future of Accounting

The future of finance is here. The automation of the accounting process is just the start; soon, we’ll be seeing automated predictive forecasting, interactive leadership dashboards, and self-service analytics as the norm in the finance and accounting realm. 

Let’s start with what we know best, retire traditional, outdated accounting processes, and open our organizations up to a new way of doing business. If we can automate accounting and finance, the rest will follow.