Digital Accounting: Mastering the Transition in 5 Simple Steps

Digital accounting has transformed how businesses operate and manage their finances. The traditional methods of managing financial data through spreadsheets and manual input are shifting to keep up with the demands of modern-day technology. 

In this article, we discuss its role and identify the significance of integrating digital processes. We also highlight the benefits of digital accounting and provide you with the steps to take to harness the digital transition successfully. 

Table of Contents

• What is digital accounting?
• Manual accounting is a thing of the past
• How does digital accounting work
• What are the benefits of digital accounting
• How does document management enable digital accounting
• How digitilazation enables companies to thrive
• The five steps to digitize your accounting

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.

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. 

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.  

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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.  

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. 

Compliance with regulations such as Sarbanes-Oxley (SOX), and GDPR can be better managed through the combined efforts of digital accounting and document management.

Mengali Accountancy updates automated processes with artificial intelligence 

Based in Northern California, Mengali Accountancy provides accounting, money management and tax services for its clients. A DocuWare customer since 2007, the company is continually improving its workflows to adapt to changing business needs.  

Recently the company added the functionality of DocuWare Intelligent Indexing. It uses machine learning, a subset of artificial intelligence, to learn to recognize document types and where data is positioned on them. When similar documents are imported the index terms are filled in automatically. After the system has seen an invoice a few times, indexing is automatic.  

Culinaire reduces the time for accounting documents to reach their central office from one week to one day  

Hospitality management company Culinaire uses DocuWare to manage accounting documents from 30 remote sites. Headquartered in Texas, Culinaire operates in 17 states and has almost 2,000 employees.  

Before implementing DocuWare’s digital capture and automated workflow, Culinaire’s central accounting office dealt with a large volume of paper documents. Each remote location sent weekly FedEx packages that contained copies of accounts receivable, accounts payable documents.  

Now, members of every accounting team log into Culinaire’s accounting portal daily. Then they create a digital report that can be reviewed in real time. Supporting documents are available digitally when needed. Instead of waiting for a week to get access to sales figures, costs and other information, this information is available that same day. This provides a snapshot of daily revenue and spending. In addition, accounting processes are initiated more quickly and bottlenecks are eliminated.  

Five steps to digitizing your accounting functions 

1. Assess current processes, identify business needs and get employees onboard 

Take the first step by evaluating each process that’s already in place, determining pain points and identifying areas that can be significantly improved by digitization. By understanding these challenges from the start, you can make informed decisions about what’s most important for your business. 

Involve your team in the design process. End users often understand more about the day-to-day work than their managers do. 

2. Choose the right digital accounting software or platform  

Once you've determined what you need from digitizing accounting processes, it's time to choose the digital accounting software that aligns with it.   

The solution you choose needs to be user-friendly and offer the features and functionality your business needs. Research, compare and consider factors such as scalability, integration capabilities and security to ensure you make the right choice.  

Look for a solution with these features:  

• 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 digitizatio

• 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. 

3. Migrate documents and test workflows 

Migrating documents and data stored in the old accounting processes is a critical step in the transition process. Typically, companies use a day-forward approach, working with older accounting documents in their previous system with a planned cutoff date, and storing and working with new documents in the document management system. Then they migrate inactive documents for archival purposes. Sometimes they only migrate a year or two of data, sometimes all old data.  

Some companies keep the old system operation in parallel to allow for a period of adjustment and enable the accounting team to familiarize themselves with the new system. In other cases, accounting departments will stop using their old system and do a strict cutover to DocuWare, stopping any processes in the old system and restarting them in the document management system. 

Depending on the design, deploying your office automation solution might begin with the creation of a test system or occur in several phases. Test early and often. Testing is often glossed over, but it’s a great way to avoid surprises during the implementation that could cause business disruptions later. Resolve outstanding issues and demonstrate progress in regular review meetings. This is also the time to begin training IT administrators and power users. Once the system has been deployed, run through one of your processes with sample documents or files, and use this as a training exercise 

4. Train staff and stakeholders on the new system 

Training sessions should be conducted to ensure that employees understand how to use the software effectively and are aware of the benefits it will bring to them and the business overall. Training time can vary from a few hours for the end users who are assigned to a small number of workflows to one or two days for system administrators and power users. Make sure you create ongoing technical documentation.  

Training time can vary from a few hours for the end users who are assigned to a small number of workflows to one or two days for system administrators and power users.  

5. Regularly update the digital system for optimization document the changes 

It's vital to regularly update and audit your digital system to ensure the business rules that your software enforces comply with new and existing regulations continue to meet your needs. Regular audits help identify and address any potential compliance issues before they become significant problems. 

Optimizations help enhance the system's overall efficiency to provide a smoother user experience. It also helps to identify inefficiencies and implement improvements to resolve them. 

Don’t forget to create ongoing technical documentation. Your documentation should identify the system administrators are so that everyone knows who to ask when questions come up.   

The systems supporting your digital transformation should meet your changing needs. Digital accounting processes are not something you set up and never think about again.  

Embracing the future of financial management 

By following these five steps, your company can successfully transition from traditional accounting methods to digital ones. This digitization process helps future-proof the business, improve productivity and accuracy, and streamline accounting processes. 

Digital accounting is transforming the way businesses operate and manage finances. As economic conditions change and businesses need to adapt, digital accounting will continue to play an increasingly important role in financial management and decision-making.  

 Your company can no longer rely on paper or a lack of integration that leads to a struggle with disconnected software systems. Ultimately, digital accounting streamlines every accounting process and improves the management and security of financial data. It’s a solution that you need to stay competitive and remain at the top of your game.