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Accounting Software Features and Benefits: A Guide for SMBs

12th Jan 2021 | Accounting

Accounting software helps you record the flow of your company's money and examine your financial condition.
Accounting software helps you track and organize your financial data, giving you an accurate, real-time look at your business's finances.
Features like the bank feed and automatic invoicing save you time by automating tedious accounting tasks.
Some accounting systems have advanced features or add-ons like payroll, shipping inventory and project management that can streamline other aspects of your business.

Managing your company's finances can be difficult, which is why you need accounting software to help you track your money as it flows in and out of your accounts. Quality programs have several timesaving options that reduce the time you spend entering data into the system. Depending on the program you have, accounting software can make tasks like invoicing your customers, recording the payments you receive, and following up on past-due receivables much easier and faster.

However, the software's sophistication can vary by vendor. While some systems offer just the basics, allowing you to record what's coming in and what's going out, other companies offer more advanced tools, automating tasks you'd otherwise have to perform manually, such as daily data transfers through a bank feed, reconciliation and recurring invoicing.

What is accounting software?
Accounting software is a tool to help you record the flow of your company's money and examine your financial condition. With it, you can record transactions, generate reports, manage customer and vendor contacts, create purchase orders, track stock levels, bill customers, and monitor account balances. [Check out our picks for the best accounting software and invoice generators.]

"Using an accounting package will help organize your records and 'force' you into a systematic structure," Ken Stalcup, senior director with Houlihan Valuation Advisors, told business.com. "That will put the company's finances into a system that can report the financial results and help when it comes to tax time."

Why use accounting software?
Using accounting software can save your company time and prevent errors.

"The main benefit of using modern accounting software is efficiency," said Fabien Dawidowicz, CFO of Spendesk. "Instead of copying and pasting data from spreadsheet to spreadsheet, you have all your transaction information in one place. You can easily see what's been spent or what's come into the business, and you always know where to find this information."

Rather than manually inputting data and transactions, you can use the bank feed feature to connect the software to your business bank and credit card accounts. With this in place, you have a daily update of your transactions. Most accounting applications have a dashboard that gives you a real-time look at your most important metrics.

The software can create a variety of reports and financial statements, including profit and loss statements and balance sheets, which are necessary for requesting funding from an investor. You can also compare transaction activity or statements from prior months and years to your current ones, which can help you analyze your business's growth, sales trends and other key metrics that you need to make informed business decisions as you prepare for the future.

You can use the accounting software to categorize expenses and schedule and pay bills, whether you pay online, by check, by credit card or with cash. This will help you keep track of those transactions and manage your cash flow.

You can also use the software to record the payments you receive in cash or by check, and create and send invoices and past-due notifications.

Accounting software automates many tedious and repetitive accounting tasks, which increases the accuracy of your data and keeps your bookkeeping efficient. If you use cloud accounting software, you can do your accounting anywhere there's a signal.

What are the benefits of accounting software?
Like most digital tools, accounting software allows you to automate tasks and enter data faster. In addition to the decrease in errors, it increases collaboration between different departments by keeping all your financial information in one space.

Besides keeping your finances organized, online accounting tools keep you compliant with local, state and federal tax laws, which helps you avoid trouble with the IRS.

Also, accounting software companies continue to make their applications more user-friendly, which means (depending on the size of your business) it may eliminate the need to outsource bookkeeping, saving you money.

What are the features of accounting software?
Now that you're familiar with what accounting software is and why you should use it, it's important to know which tools and features to look for when choosing a system. Nearly all online accounting software uses double-entry accounting to ensure accuracy and have accounts receivable, accounts payable, banking and reporting features. Some also include inventory management, project management, time tracking and payroll tools, though these features are usually in higher-tier plans or add-ons that cost extra. Here are some core elements of accounting software.

1. Accounts receivable
Accounting software systems should be able to handle billing, keeping track of what customers owe (accounts receivable, or A/R) and their payments. Here are some of the main A/R features to look for.

Invoice processing
At the very least, accounting software should be able to handle invoicing. When money is owed to you, you need to know from whom, how much and when to expect payment. All accounting systems allow you to print invoices, with most letting you email them. Your system should remember basic customer data, such as names, addresses, account numbers and standard terms. Most of today's software systems also remember your standard pricing for a wide variety of products and services.

Automatic invoicing
This ensures revenue is never delayed because you've forgotten to send out an invoice. In addition, with automated statements and late reminders, the accounting software acts as your collection department, reminding customers to pay their bills.

Payment processing
Many accounting systems allow your customers to pay their invoices online by clicking a button on the electronic invoice you send them. The advantages for the vendor are many, including less staff time devoted to processing checks or making bank deposits, greater security for payments, and faster processing times. However, there are costs involved. Expect to pay rates similar to those of credit card processing companies to have your accounting system handle debit and credit card payments.

Some systems allow ACH payments to be directly deposited into your checking account, and there's nothing quite like payments pouring into your checking account automatically every month without you waiting for checks in the mail or running to the bank. Although there's often a fee for this as well, it's usually less expensive than accepting card payments.

2. Accounts payable
Nobody likes paying bills, but keeping track of what you owe is essential for any business. The way your accounting system handles the outflow side of your funds can vary. Here are some of the most useful accounts payable (A/P) features.

Purchase orders
Handling your purchases and what you owe is one of the main tasks for accounting software, but how it functions can vary, from producing simple purchase orders to following quotes all the way through to purchase and payment.

Vendor credit memos
It's easy for a business to lose track of all those credits vendors often hand out, either as rewards or returns. However, credit memos are as valuable as cash, so a system that can track them helps keep costs down.

Automatic payment
From scheduling bank payments and direct deposits to printing checks, many A/P modules can completely automate your payment processes, ensuring you don't fall behind.

IRS tax forms
Having a database of the most common tax forms, such as the 1099 and 1096, can save you a lot of time. This is especially true if your accounting system can input all the necessary data on the forms for you and file them electronically with the IRS. Electronic payment of taxes and filing of forms can keep you from being penalized for late payments.

3. Payroll
Payroll modules are extremely sophisticated in some accounting systems, offering full payroll services that do everything from calculating hours and processing wages to paying payroll taxes and making 401(k) deductions. Here are some of the best payroll features for accounting software.

Variable wage schedules
Whether your employees are salaried or paid by the hour, a system that can accurately calculate what you owe them is essential. Problems arise when you have many intermittent workers or part-time staff. Some employees may be paid monthly, others weekly or biweekly, or as needed. Your software should be able to handle different pay schedules along with different types of compensation (commissions, salaries, profit sharing, bonuses, etc.) and benefits (health insurance, retirement plans and even perks like paid parking).

Direct deposit
This is essential for accounting software to support these days, as most people expect their paychecks to be deposited directly into their bank accounts. Decent accounting software should allow you to set up scheduled direct deposit payments.

Automatic tax calculations
This ranges from handling only the basic deductions to providing sophisticated tax tables and printing relevant forms. Find out if the system supports new-hire reporting, expense tracking, W-4s and W-9s. Does it handle monthly federal tax deposits and quarterly federal tax reports, such as Form 941? Does it take care of annual reports and returns, such as the W-2, W-3, Form 940 and 1099? Will it do state tax returns for income taxes and unemployment insurance? Can it handle workers' compensation insurance calculations and payments?

Expense reimbursements and deductions
If your employees incur tax-deductible expenses, such as travel and entertainment expenses, you'll want a system that can accommodate these reimbursements and ensure that payments comply with tax deadlines.

4. Banking
At the very least, accounting software should have some form of a link to your bank account, enabling you to make direct payments and import real-time data from the bank into the accounting system. Some software can go much further.

Account reconciliation
If you have more than one bank account, software that can keep track of them all and reconcile them is essential. Make sure your program includes a general ledger function and checkbook reconciliation.

Bank deposit prep
These days, an accounting package that can't handle the setup of basic electronic deposits is unheard of, but you should check on what type of electronic payments it can handle.

Check handling
If you make a lot of payments by check, then a system that can print and process your checks will save you a lot of time. Look out for other features too, such as check voiding and notification of duplicate check payment.

What reporting options does accounting software offer?
Besides the array of features available in accounting software, the quality and quantity of reports the system can generate differ widely. Some systems offer a vast range of reporting options with virtually unlimited categories. Others just offer the basic reports: money in and money out. Here are some of the better options.

Standard reports
The accounting system should be able to generate the customary reports used in business, including income statements (profit and loss), balance sheets (assets and liabilities), statements of cash flow, accounts receivable, accounts payable and payroll summary.

Customizable reports
A system that enables customizable reporting options allows you to create and compile any report of your choosing. Look for a system that lets you easily add or remove columns in standard reports, resize column widths, and remember custom reports so that it can duplicate them in the future.

Graph summaries
Long lists of numbers can be difficult to interpret, so software that can translate data into pictorial forms such as pie and bar charts can help you make sense of where your money is going. Look for color-coding capabilities and the ability to display previous years on the same graph for easy comparison.

Cost predictions
Reports are all well and good for helping you identify trends, but a system that can interpret data, make statistical analyses and produce forecasts can help you make financial decisions based on facts, not guesswork. Look for systems that include budgeting, estimating and other cost functions.

Subsidiary reporting
If you have multiple businesses, a system that can amalgamate certain financial aspects can give you a better perspective of your entire portfolio, rather than making you estimate from individual reports.

What are advanced accounting software features?
Online accounting software can handle processes well beyond the scope of financial management, providing a single platform to control nearly all aspects of your business. Look out for the following advanced features if you think they'll assist you in running your organization.

For online retailers and businesses that frequently send goods by couriers or clients, an accounting platform that can handle shipping processes will save you the investment of a separate shipment software program. Here are some of the features you should look for:

Shipping label printing: This can save you a lot of time and streamline the shipping process by producing labels along with orders or invoices.
Shipping cost estimation: Some systems can be set up to understand differences in weight and distance to provide accurate shipping cost estimates. This ensures that you include such costs in your billings and pricing.
Shipment tracking: A link to a courier's tracking system ensures that you can monitor what has been shipped and estimate delivery times more accurately, providing better service to your customers.
Drop shipments: If you need to send a product to a customer directly from a supplier or manufacturer, it can wreak havoc with your billing unless your accounting platform can handle drop shipments.
Inventory management
An accounting system with stock and inventory management controls can really streamline your business, helping you identify what you have in stock, what you need to reorder and where you're spending your purchasing budget.

Inventory tracking: Following the lifecycle of an item – from purchasing to stocking to sales, all the way to shipping – is a great asset to help you track inventory levels.
Set inventory levels: You can ensure you don't over- or under-order certain products by using automatic ordering to guarantee stock within a specified range. This saves you the hassle of not having items in stock when you need them or a glut of products that just won't move.
Specified stock locations: For large distribution hubs, having stock locations included on orders avoids the need for an additional warehouse management system, which helps streamline business functions.
Item images: The inclusion of item images is also advantageous for distributors, as it allows all individuals involved in the process to identify products visually and ensure that the correct items are being shipped.
How does accounting software monitor time and job management?
Most organizations need to monitor attendance and time spent on specific tasks. Time and attendance modules can be very helpful additions to accounting systems. Look for these capabilities.

Time tracking: If you pay staff by the hour or require employees to punch in at a certain time, keeping track of attendance and hours is essential for accurate payroll. To ensure accurate timekeeping, this is usually done with a timeclock. These timeclocks can be compatible with electronic swipe cards, barcodes, PINs or even fingerprints, and some systems allow users to clock in from a web browser or an app.
Job tracking: Businesses in service-based industries often need to track how long jobs take to make sure they charge the right amount. This type of time tracking can help you make adjustments in future prices and identify trends in the costs of different jobs.
Job status: If your software shows you which jobs are being worked on and which are inactive, you can keep track of what needs doing and when.
Estimates: For some service businesses, providing an estimate is essential to procuring the job – and maybe to getting paid. A system that can store estimates and turn them into orders and invoices in just a few clicks promotes efficiency.

By: Simone Johnson