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Matthew Addison, Author at The Latest on Accounting Tech for SMEs

About Matthew Addison

Executive Director Institute of Certified Bookkeepers

Tread Carefully With Quick Finance In Your Software

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The last few months have seen each of the software providers talk about the integration of Banks and Lending providers into the software.

In general we may have entered a world where it is far more efficient and simple to obtain finance for your business. The easier access to data should expedite the process and remove form filling as well as tedious bank manager interviews.

While the process is becoming easier, advisors need to be conscious of the professional, ethical and legal implications.

If anybody were to get a clip of the ticket from a lender because they helped a business borrow money, either as a referral fee or a monthly commission, then that advisor has put themselves in the firing line. They can be challenged about why they referred the business to borrow funds and why they recommended a particular lender.

Disclosure of commissions is absolutely required in all senses of the word by everyone involved. If a software vendor is taking a clip then they need to disclose that. If the Advisors (bookkeepers, accountants or anybody) is assisting or encouraging a business to borrow funds then that Advisor has a professional obligation to disclose.

Many Advisors will have a legal obligation to disclose, let alone the overwhelming ethical obligation.

 

In practice what it means is:

  1. a link between the Lender (the Bank or other), who is in the business of loaning money, connecting to your Business data (the software) through an API or similar.
  2. The Lender gets restricted access to the business records and runs its own analytics and checking program over the data to make a risk assessment.
  3. Based on that assessment it offers an amount of cash for a period of time at a determined interest rate.
  4. The connection might be initiated by the Business itself, depending on how the software has established the link, or the introduction might be by the Bookkeeper or Accountant.
  5. Typically the Lender is providing an introduction referral fee to both the software provider and the Bookkeeper or Accountant.

 

There are four things Advisors should be aware of.

1. Disclose, disclose, disclose

Anybody that is receiving commission or a referral fee for introducing a lender to a business should be disclosing that fact to the business.

 

2. Understand the interest

The interest amount (in the short term cashflow lending world interest is sometimes called another name) has to be thought about differently.

The risk rating of such borrowing is going to apply fairly hefty real interest rates. It might make sense for a business to access short-term (two weeks, four weeks, two months) funding to overcome a seasonal or short term cashflow crisis.

That business might deem that the $10,000 it needs for two months is worth the $1,000 “interest”. However do the maths; $1,000 interest for two months would be $6,000 for a year on a borrowing of $10,000. A rate of 60 percent is pretty huge!

The numbers I have used were for simplicity and fairly large, however the example is real and the issue needs to be considered!

 

3. Short term vs long term finance

When an advisor is involved in arranging business finance there is a professional expectation that the real requirements of the business should be considered. Meeting a longer term finance need with a series of short term cashflow lending solutions can be both very expensive and not the right solution for the business.

 

4. Be professional

Are you competent to be involved in the financing decisions of the business? The “newer” lenders seem to be most willing to work with you, inform you, train you and therefore ensure that it is they who provide the expert lending advice.

 

In our view there would be an expectation on any Professional advisors to provide additional information to that provided by one connected lender. What is an alternative lending option? Is the interest rate reasonable? Is it really a short term cashflow crisis or is long-term lending required?

It may be a whole new world of needing to understand a more complete picture about financing business. Just because the software integrates with a lender and the lender says it will lend the money is not a good enough reason to borrow the money.

 

The Future

Similar to what we are now seeing with electricity companies and health insurance, there will be a range of third parties offering comparisons of all the suppliers. I think we are very close to having your software link to a comparison service with a range of providers and you will get a comparison report of several offers of finance.

Image credit: BRW

Why Bookkeepers Are Actually Business System Managers

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There is much debate as to the breadth and depth of what a bookkeeper was, is and should be. There are many claims that, due to the cloud, bookkeeping is dead and we should all be looking for something else to do.

How can that be?

The word “bookkeeper” makes people think of the physical activity of maintaining the accounting ledger. But it’s not what most bookkeepers do today. We spend our time advising, setting up and managing integrated business systems.

Bookkeeping is far from dead. Due to the advancement of technology including cloud software the role of a bookkeeper is not only more obvious, the competence required to do bookkeeping properly is more evident.

As a result the integral role of a bookkeeper in the success of a business (and its compliance) is being appreciated and acknowledged by so many more.

The Australian Tax Office and other government agencies are recognising that bookkeepers can foster well-run businesses. The Federal Treasury have caught on that bookkeepers and BAS agents are preparing and lodging many, many business activity statements (BAS’s).

The better software companies are recognising that, in Australia, it is the bookkeepers who are working very closely with business and who are at the forefront of what technology a business implements. It is the bookkeeper who should lead the charge on changes to software to do with accounting/bookkeeping/compliance/record keeping as it is the bookkeeper who is working with that software “more than once a year”!

Technology is bringing us better solutions and better ways to do business. Technology is changing what we do, it is not removing it.

The implementation of the GST in 2000 brought bookkeepers to light. Someone needed to make sure the business was collecting GST when it should and getting every cent of it back. Someone needed to work closely with the business to change their business processes and comply with the new requirements.

These needs haven’t changed. The advancements in technology has changed the way bookkeepers carry out these tasks. There are changes in the process for nearly every type of responsibility:

  • Tracking the ways a business spends money
  • Recording and ordering cash payments such as expense receipts
  • Recording and reconciling the accounting system with an ordering system
  • Receiving, checking and paying supplier invoices
  • Paying employees and recording the payment and payroll obligations
  • Meeting all employment on-costs and obligations

All these tools make a bookkeeper more effective and more efficient. It should be the bookkeeper who helps the business owner select the best software to manage the back office. A more efficient business system will give a business better visibility of its cash flow and forecasts.

Bookkeeping isn’t just historical processing, just as bookkeepers aren’t just data entry clerks. Bookkeepers need to recognise themselves as business system managers and value themselves accordingly. Once they do this, then their clients and accounting colleagues will too.

A version of this post first appeared in the April newsletter of the Institute of Certified Bookkeepers.

The Brewing Fight in Accounting – Who Owns the Client?

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The accounting industry is in upheaval due to the revolutionary nature of online accounting software. This upheaval is creating conflicts on a number of fronts among bookkeepers and accountants – and clients could suffer as a result.

In the late 1990s, software began to move to annual renewal fees and monthly subscriptions in return for compliance updates and new features. Somewhere in there, the intermediaries (accountants and bookkeepers and consultants and retailers) felt they should get a share of the annual fee paid to the software company.

This was the start of the trend around commissions, incentives and kickbacks. But it also raised another issue – who actually owns the client? Does the client using a particular accounting program belong to the software company or to the intermediary who introduced them to it?

It’s an issue exacerbating the existing tension between accountants and bookkeepers caused by subscription based access to software, proliferated by online accounting software providers. Some accountants see improvements such as a single ledger, automation of historic coding and easier financial reporting. They then mistakenly conclude they can do it all themselves and cut out everyone else (read, bookkeepers).

But there are different perceptions about how to best use accounting software. Too many accountants continue to think that accounting software is only used to code transactions into the chart of accounts so reports can be prepared. This is not the better view!

Some accountants and bookkeepers fail to realise that accounting software is also the BUSINESS OPERATING software. The software should be doing the business and the accounts just happen.

The ways accountants and bookkeepers use accounting software is different to business owners. A lot of confusion and frustration has been caused as these two usage models collide and overlap.

Software commissions and loyalty schemes are likely to stay because they are used to drive subscriptions. The subscription model has become the norm. Software companies want a recurring revenue stream to justify enormous valuations to investors.

What should an intermediary say to the client about the loyalty program or software company relationship?

Intermediaries should use their relationships with software companies as a sales/credibility tool! Show your expertise through membership of their programs and demonstrate to your clients your knowledge and connections.

If an accountant comes along and steals the commission trail on online accounting software from a bookkeeper, so what? Is it really secret commissions that impresses the business owners and management or keeps you in business?

But businesses should be and must be aware. Therefore tell the client about commissions, both yours and the accountant’s.

A version of this post appeared in the Institute of Certified Bookkeepers’ July newsletter.

Why Bookkeepers Must Understand the Cloud

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We are in the midst of another great business revolution. The first was in the early 1990s when accounting software came to the desktop. It has been a revolution of vast improvement, taken on by some and fought by others.

Today the revolution to embrace cloud provided technology and solutions is a great step forward. We have solutions that solve problems we didn’t know about in the 90s.

Accountants and bookkeepers must know best practice for business software or they will fail to give their clients the best advice and service. This means learning and adapting to new techniques within today’s software and staying on top of new developments.

Understand that we are in the midst of a revolution. DO NOT withdraw from those software improvements that make manual bookkeeping practices redundant.

Here are some of the flagship changes.

  • Daily bank feeds and automated coding are a fact of life and should remove this mechanical process. Bookkeepers – if you think of your work as data-processing then the accountant has won. Your bookkeeping is far more, or at least should be.
  • Cloud accounting software gives many people simultaneous access to a data file. Adapt to this using the best way possible. A single or common ledger and multiple views of the same data are just the start of it.
  • Programs that “read” suppliers’ invoices, extract the data and import it into your accounting software are here (and getting better). You will need to bring them into your solution set.

Once quick and reliable internet is available in your area then adapt the business process improvements and efficiency provided by cloud accounting software. Assess which software is best for that business.

Ensure you are the one that has proposed these changes to your business and to your clients’. You should be the one that has already implemented them before someone else thinks about it.

Be very close and very involved with your business and your client. Your client needs to know why you do things the way you do.

A version of this post appeared in the Institute of Certified Bookkeepers’ July newsletter.

Why You Must Disclose Commissions on Cloud Software

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Competition in accounting software has increased markedly, with passionate accountants and bookkeepers on many sides. But there is rising concern over whether some partners are pushing one type of accounting software in return for commissions.

Software should be chosen on a range of factors: accessibility, ease of use, a modern application and environment, processes, natural business systems. In short, does it help the business do business?

But instead of evaluating their own organisation’s needs, business owners sometimes defer the decision to a trusted adviser. This does not always give the best results.

I do question a business that chooses software on recommendation from an accountant who they talk to just once a year – and without consulting those that run and monitor their business every month. Who knows how the software will be used? And why is a particular solution being pushed.

I also continue to feel uncomfortable with software being selected by accountants based on the commission to the adviser. Informing the client about the “benefit” is not only appropriate it is also required under some ethical rules.

All software companies pay commissions to varying extents. When BankLink began providing an electronic transaction service directly to accountants, they received a cut of the fee for every single line of data on a “bank statement”. I wasn’t comfortable with this practice then and I remain uncomfortable with it now.

How should you deal with such commissions and benefits from software used by your client?

This is a conflict that requires a professional to consider and take action. There are well established principles and procedures for the disclosure of these types of conflicts. See Accounting Professional Ethical Standards APES 110 or the ASIC guides for Financial Planners.

Accountants and bookkeepers are obliged under the code of conduct in the Tax Agent Services Act 2009 to maintain independence. “You must act lawfully in the best interest of your client and you must act honestly and with integrity.”

Please note just because there is a conflict does NOT make it a bad thing. (A discussion for another day.)

Are commissions to accountants and bookkeepers a problem? Join the discussion on LinkedIn.

In my view a professional must:

  • Make software recommendations to their client based on what is best for the client and their business, and not because of any incentive.
  • Recognise where a relationship with software company may give a benefit to the adviser.
  • Disclose to the client the benefit received.

Accountants and bookkeepers should be working together for the best outcome for the client. If the software gets cheaper or there are other benefits then the client probably should know about it and ultimately benefit as well.

I recommend bookkeepers use the ICB’s disclosure form, shown below.

A version of this post appeared in the Institute of Certified Bookkeepers July newsletter.

DISCLOSURE REQUIRED

Dear Client

DISCLOSURE

As you are aware we are a Professional Partner with software company ___________.

This enables us to be closely aware of their ongoing developments, participate in their training and information sessions and benefit from knowledge and loyalty schemes.

1/ As a partner with Xero, we have a number of clients using the Xero software. As you are aware your Xero subscription is paid for by our firm and onbilled to you at a fee of $ per month. Due to our partnership with Xero and the number of clients we have on Xero we receive a discounted price for purchasing your subscription from them (of $x per month). As A _____ level partner we have also become eligible to receive practice management software provided by them for no cost.

2/ As a partner with MYOB / Reckon, we have a number of clients using their software. As you are aware your software subscription is linked to our partnership with them and accordingly we receive a commission of $___ / __% per month. We have chosen to have any such commission put towards our software licencing costs to the software companies..

3/ As a partner with Intuit’s Quickbooks Online we are eligible to receive free practice management software from them.

Please contact us if you wish to discuss any aspect of this matter.

Yours faithfully

About D1

Digital First covers news and opinions on accounting technology and is read by tech-savvy accountants who understand the importance of technology in establishing competitive advantage.
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