In the late 1800s, William Burroughs created a commercial adding machine. Accountants and bookkeepers at the time worried the new technology would allow less skilled clerks to do calculations, jeopardizing their jobs. In the late 1970s, bookkeepers witnessed the emergence of electronic spreadsheets . . . and again felt threatened by the rapid pace of technological change.
Fast forward to today. Despite the advent of adding machines, spreadsheets and other financial technologies, bookkeepers are still busily working in the United States and around the world. According to the U.S. Bureau of Labor Statistics (BLS), roughly 1.7 million Americans have bookkeeping and related jobs, earning a median annual wage of $41,230. Although the BLS predicts the loss of 95,000 bookkeeping positions by 2029, that still leaves the country with about 1.6 million bookkeepers. Not bad for a career whose death has been predicted many times throughout history.
Still, there’s a reason why the government predicts the bookkeeping ranks will shrink: automation. Due to the application of artificial intelligence and other computing technologies to bookkeeping work, there will be less demand for people to handle routine tasks. Some observers predict the field may become obsolete over the next decade or so. But others aren’t sure . . . predicting that automation instead will have a liberating effect on the industry. With bookkeepers freed to do more strategic and analytic work, they believe bookkeeping’s future will be very bright, indeed.
So what will it be: doom and gloom or unlimited opportunities? It’s too early to know, of course. But we’re betting the vast majority bookkeepers working today will learn to embrace technology and land on their feet.
What Is Bookkeeping Automation?
Bookkeepers commonly handle tasks such as:
- Documenting financial transactions
- Posting credits and debits
- Generating invoices
- Handling payroll
- Producing and balancing ledgers, accounts and subsidiaries
With potentially thousands of transactions to post each month, the more efficiently bookkeepers can operate, the more effective they’ll be. Enter bookkeeping automation, which is defined as the application of cloud technologies, artificial intelligence, machine learning and other technologies to streamline accounting workflows and enhance accuracy.
With the bookkeeping applications currently available, it’s already possible to create a partially automated invoicing and accounts receivable process. For example, many bookkeepers advise their clients to use QuickBooks (and QuickBooks Payments) to allow them to collect invoice payments using bank ACH or credit cards with just a few clicks. The payments then get downloaded into Quickbooks and the payments allocated to the correct open invoice. By emailing invoices and using QuickBooks Payments, their entire accounts receivable process can function with minimal bookkeeper involvement.
The same holds true for accounts payable. Clients can set up recurring vendor payments as automatic vendor transactions using their business credit cards. For routine business expenses, they can link their credit cards to QuickBooks. This means both types of expense transactions—recurring and single—can easily feed a popular bookkeeping application like QuickBooks.
What’s more, using an outsourced payroll provider such as ADP essentially automates that part of a client’s business, again integrating seamlessly with QuickBooks.
The automation just discussed is within reach of most small businesses and their bookkeepers today. The goal is to take it to the next level so humans don’t have to touch the system as frequently as they do today and can access their financial data from the cloud on any desktop of mobile device. This is possible by automating all of the following to a much greater degree:
- Tasks that involve manual calculations
- Activities involving complex data
- Tasks with electronic beginning and end points
- Functions that require an electronic trigger
- Tasks that are prone to high error rates
- Steps that are highly repetitive
To fully automate these tasks, accounting technology firms apply artificial intelligence (AI) to every part of the traditional bookkeeping process. AI is a technology that lets machines mimic human behavior. Machine learning is an AI subset that lets machines automatically learn from prior information without having to be programmed. The goal of AI (and machine learning) is to create a smart computer system that can handle complex tasks with little or no human involvement.
How does AI work in a bookkeeping setting? According to botkeeper, a bookkeeping provider to accounting firms, automation hinges on making machines capable of categorizing transactions. Rather than just applying basic rules, bookkeeping machines—or bots—can review hundreds or even thousands of variables simultaneously. In addition to categorizing, automated bookkeeping systems can validate transactions and provide a confidence rating. They can even suggest how to handle transactions they’ve never seen before. Finally, bookkeeping automation can provide context about what transaction data actually mean.
Benefits of Bookkeeping Automation
That’s all well and good. But automated bookkeeping isn’t just another form of technology innovation. It’s a tool kit that produces tangible and highly beneficial business outcomes. Here are some of the major ones:
- Time savings: When an automated system can access data from a business checkbook or credit card instead of having a traditional bookkeeper enter it, the time savings can be huge. This is especially true when accounting periods close. If a company is using its automated accounting system correctly, there should be nothing to reconcile.
- Productivity gains: Bookkeepers will generally have less transaction-oriented work to do, freeing up time to do higher-order analyses.
- More accurate data: Every time a human bookkeeper touches a piece of data, there’s a chance the person will inject an error into the system. With automated accounting, machines capture and post data. Assuming they’ve been programmed correctly, they will be much less likely to make mistakes. However, it’s still important to have a human bookkeeper verify the end result.
- Faster data retrieval: Back in the pre-automation days, each transaction may have involved a paper file, which had to be stored somewhere in the physical world, often in three-drawer files or storage boxes in a records facility. To get your hands on the file required a lengthy process of requesting it be pulled from your archive. With bookkeeping automation, you access data almost instantly.
- Safe file storage: With most of the commercial world transitioning to electronic receipts, the advent of automated bookkeeping means you can easily enter purchase proof in your bookkeeping ledger and store the e-receipt in an appropriate computer folder.
- Easy cloud access: With automated bookkeeping systems that live in the cloud, you no longer have to be at a specific computer or near your physical files to access transaction information. Now you can just request it from your automated bookkeeper via an accounting dashboard on your computer.
- Convenient system integration: Moving to automated bookkeeping and accounting means it’s much easier to link all of your financial systems into one easy-to-run platform. For example, your payroll system can link with your accounting program, which also connects with your spending-management software. Because everything is linked, you never have to copy data from one component to another. With bookkeeping automation, you get immediate and accurate access to all data across the entire financial system.
- Cost savings: If a company can reduce the amount of time it spends on bookkeeping, it will produce substantial cost savings that can go toward improving operations in other areas.
- Less stress: With traditional bookkeeping, stress mounts around closing periods. With automated accounting, machines handle much of the heavy lifting and generate fewer mistakes than human bookkeepers do. This makes for much less stress at closing time.
However, automated bookkeeping does have disadvantages. One of the main ones is the steep learning curve, especially if you’ve never worked with a “bookkeeping robot” before. Another is having to verify the accuracy of transactions pulled into your bookkeeping software, particularly how they’re categorized. Entrusting more of your bookkeeping to an automated system means you may have difficulty getting answers from your application when you need them. Sometimes having access to the extensive knowledge and expertise of an experienced human bookkeeper is essential, especially when you have a complex question that requires an immediate answer. Finally, if you decide to go with a cloud-based bookkeeping system, you’ll need to do your homework to make sure your data will be safe and secure. The major providers assure their customers they have robust cybersecurity protections in place. But verifying those claims might be a good idea.
The Human Question
By automating a large part of the bookkeeping process, next-generation systems have the potential to put a lot of today’s bookkeepers out of work. But is this a realistic threat? Not really, say observers of the accounting business.
“It’s wrong to suggest that (automation) is a death knell for bookkeepers,” says Mel Power, former head of bookkeeping at Xero Australia. “Automation will indeed replace the need for drawing in, organizing and tagging financial data. But I don’t foresee any near future where a robot can accurately—and empathetically—advise small business owners about what that data means for them and their employees.”
Here are some other reasons why human bookkeepers will continue to play an important role in the business community:
- Their oversight of automated bookkeeping systems will be essential. To assure compliance, a knowledgeable person will always have to be in the loop, supervising the automated system’s output and resolving exceptions.
- They will help their employers and clients draw conclusions from their bookkeeping data. No automated accounting system can draw strategic inferences from financial data. That requires a human being who has expertise on the firm, its industry and business performance metrics.
- They can provide input on why the financial statements ended up as they did. By helping their employers and clients understand what went right or wrong, they will assist them in sustaining or remediating their performance in the next financial cycle.
- There will always be a need for human bookkeepers to prevent the “garbage in/garbage out” problem. Computers will automate and speed up the process of bringing data into the system. But only human eyes can check to see that the data is the right data and that it’s formatted and categorized properly.
In short, automated bookkeeping systems will remove tedium and produce surplus time. If they’re smart, bookkeepers will invest that time to master the new technology and to become strategic advisors about bookkeeping tech—and other financial matters—to their employers and clients. What’s more, since humans will likely be doing bookkeeping for decades to come, they will continue to be exposed to the same risks bookkeepers have been exposed to for decades:
- Not expensing an asset properly, which triggers asset depreciation errors and tax overpayment
- Mistakenly generating invoices and recording payments, leading to overstated income
- Missing a double posting because they failed to reconcile accounts on a monthly basis. This throws off tax calculations
- Not properly tracking account receivables, jeopardizing future payments from big customers
- Missing out on potential expense deductions for tax purposes because of sloppy bookkeeping
That’s why protecting your business and personal assets with professional liability insurance is essential. If you make a bookkeeping mistake, the total cost of legal judgments against you can easily reach five or six figures or more. But as long as you buy and maintain professional liability insurance, you will be protected from potentially crippling client lawsuits. No automated bookkeeping system can do that for you.
To protect your business and personal assets against client lawsuits, learn more about bookkeeper professional liability insurance from 360 Coverage Pros.