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Tom Davis

What Is SaaS and Why Is It Changing the Way CPA Firms Do Business?

Accounting firms are discovering the advantages of Software as a Service (SaaS) business applications such as Bill.com, an online accounting solution that automates the accounts payable process and more.

July 28, 2008
Sponsored by Bill.com

by Tom Davis, CPA/CITP

The implementation and maintenance of an accounting firm’s software environment is the largest cost, after employee-related compensation. Additionally, firms are looking to technology tools to provide more resources and to combat spiraling staff costs. The need for more (increasingly complex) technology and the declining number of vendors selling products to accounting firms make it a certainty that software costs will continue to climb. Software as a Service (SaaS) is emerging as a significant opportunity for firms to get more and spend less.

SaaS Definition

Software as a Service (SaaS, typically pronounced “Sass”) is a model of software deployment where an application is hosted as a service that is provided to customers across the Internet. The application is not running on a server in the firm’s office. In many cases, SaaS applications are paid for in an on-demand manner, often “by the user, by the month.”

A narrower definition of a SaaS application stresses that while the SaaS software is a “hosted” (not in the firm’s computer system); there is a single code base for the software that is used by all customers. While the software might be configurable by users to their individual needs, the code itself is the same for all and is not customizable for any individual customer. This single code-base approach keeps things simple for the vendor and it allows for rapid development and deployment of changes and enhancements to the software. Any enhancements immediately become available to all customers.

SaaS and the Accounting Industry

SaaS is not new to the accounting industry. Many of the “traditional vendors” such as Wolters Kluwer (CCH), Thomson Reuters (Creative Solutions RIA, PPC) and Intuit (Lacerte) are making substantial investments in SaaS applications. These vendors have introduced hosted version of their traditional applications as well as some true SaaS tools.

But interest in SaaS is gaining in the accounting profession as is its perceived importance. In 2008, the American Institute of CPAs ranked Web-deployed applications No. 14 on its annual list of top technology initiatives. As Barry Melancon, president and chief executive of the AICPA told Accounting Today magazine, “On the corporate side in the world, it is a big issue. On the public accounting side, I think it goes back to merger and acquisitions. I think we’re seeing firms grow and so the adaptation of management tools like ERP systems inside of firms is happening and will continue to happen aggressively in the larger firms.”

An interesting side effect of SaaS is that it is reversing the trend of fewer vendors selling software to accounting firms. Because SaaS applications often have a focus that is useful to both accountants and non-accountants, the cost for getting the application into many markets is relatively very low; a SaaS vendor can develop a product that will meet the needs of a broad spectrum of industries. For example, payroll process, document imaging and management, data security and sales force automation are examples of types of products that are narrowly focused and will meet the needs of many industries. So now you see new vendors popping in the accounting firm space such as SalesForce.Com (sales force automation, Paychex (payroll, HR), Intacct (Accounting), Copanion (document management) WebEx, GoToMeeting, GoToMyPC (communication) and many others.

Teresa Mackintosh, Senior Vice President, Tax & Accounting, Thomson Reuters, also feels that SaaS will be of increasing importance to accountants in every size of firm. “To combat the escalating staffing crisis, firms will have to support increasingly complex technology,” Mackintosh says. “Additionally, SaaS applications can provide a level of security and data protection that few firms can afford or implement.” Mackintosh also feels that the SaaS model will reduce the total cost of technology ownership for firms and will give vendors an opportunity to offer different pricing models that will make it easier for firms to afford these new tools. She also thinks that SaaS will have a positive impact to new firms in the accounting profession. It reduces the barriers to entry due to the low initial technology investment and provides a strong correlation to the growth of the client base and the need to add staffing resources.

Some of benefits to accounting firms of the SaaS deployment approach are:

  • SaaS can reduce short-term expenses since there is not an up-front purchase of hardware or software.
  • SaaS eliminates the need to use scarce firm resources to install, maintain and support the application and its infrastructure.
  • SaaS applications typically have features and capabilities that are not available in in-house applications because of the infrastructure required to run them or their relatively high cost of deployment.
  • Software updates are handled automatically by the vendor. Bug fixes can be implemented as soon as they are available and a firm’s software is also up-to-date.

CPA2Biz Embraces SaaS

CPA2Biz continues to expand its offering of technology tools for accountants. It has just announced a new alliance with Bill.com, a SaaS solution to completely handle a company’s accounts payable needs.

SaaS applications offer accountants the opportunity to reduce costs, add powerful software tools and free up scarce management and staff resources. These Internet-based tools give firms access to powerful and important technology tools and features with minimal up-front cost and implementation effort.

“The profession is clearly starting to embrace the power of SaaS or Web applications. We’re past the point where we need to evangelize the concept and its benefits. However, we’re now in a stage where the range of options is increasing and it is not always clear to firms which applications have reached the proper level of quality and whether the ROI of using such applications is there yet, said Erik Asgeirsson, CPA2Biz’s president and chief executive officer. “Investigating this is can be very time consuming, mainly for small and medium sized firms. This is where CPA2Biz can help by cutting through the clutter and partnering with firms like Bill.com to make their products better tuned to the needs of the accountants.”

Bill.com focuses on accounts payable and provides the needed features to handle every aspect of the AP process. The value proposition is that it costs a business a ton of money to handle its payables. A 2006 study by the Aberdeen Group states that it costs anywhere from $34 for businesses to manually process an accounts payable invoice (97% of invoices are processed manually). This cost includes receipt of an invoice, the verification of the invoice, its approval for payment, entering the appropriate information into the accounting records, cutting the check, signing the check, mailing or transferring the payment to the vendor and filing the information for possible future use. The $34 amount does not take into account the additional costs related to lost documents or the costs related to the use of AP information subsequently by others such as internal and external auditors, regulatory agencies and others.

And the costs don’t end here. A typical company’s AP process is fraught with inefficiencies. Since most small businesses lack the tools and skills to manage cash, it’s difficult (impossible) to get a handle on cash flow or to stretch out its payables. AP data entry is very prone to errors and irregularities that can result in duplicate payment and/or late payment, fraud, extra costs in the form of late payments and lost discounts and the wasted resources required to clean up the mess.

Most accounting software used by businesses handle just portions of the AP process. Solutions that handle it all have typically been relegated to large companies with more than 1,000 employees and the ability to pay tens of thousands of dollars for a solution. Enter Bill.com.

Bill.com is an online service that automates a business’s accounts payable processes for receiving and paying bills, linking and storing invoices, checks and related documents in one place and providing access to this information to the appropriate person, from any place at any time. Here is the Bill.com process:

  • Invoices are uploaded to Bill.com directly from the vendor or scanned and e-mailed by the company or sent via fax.
  • Receipt of the bill triggers the payment process. E-mail alerts at different points in the AP process are sent to the appropriate team member for notification that a bill needs to be attended to (allocated to the appropriate account, approved, scheduled for payment, etc.). Bill.com allows for the assignment of “roles” that controls the features and capabilities a specific user has. This approach protects the approval function and also allows for an “outside accountant role” that allows the accounting firm to access and review information while protecting the independence of the firm and protecting it from liability.
  • Appropriate team members can access the Bill.com Calendar that shows the business’s cash flow position. Because Bill.com is accessed via the Internet, client personnel and the accounting firm’s staff can all access the same information from any location. This let’s a client with multiple locations have the benefits of a highly centralized database. An accounting firm can reduce its cost of having team members travel to the client’s location to perform the bill-paying service.
  • Scheduled bills are then paid by check. Bill.com initiates an ACH payment with the client’s bank to pay the bill.
  • All information (invoice, payment check, receipt, approval and payment history, vendor info, etc.) related to the bill is linked and available for online access — Bill.com becomes your electronic filing cabinet for payables. You have one location for everything.
  • Data is synchronized with Bill.com to QuickBooks and QuickBooks online edition with the push of a button. Other accounting package integration is in the works.

The bottom line of the Bill.com process: dramatically reduced a business’ processing costs for payables (average processing cost drops from $34 per bill to less than $2) and greatly improved accuracy and security in recording AP information and paying bills. Another benefit is the increase in data security: all the documents associated with the bill paying process are stored and backed up in Bill.com’s world-class data storage software.

The CPA2Biz/Bill.com alliance offers some good opportunities for accounting firms. First of all, firms that are AICPA member firms can use Bill.com for their internal use for free. This is a great opportunity for firms to do for themselves what they recommend to their clients.

Additionally, Bill.com is unusual in that it opens up a new revenue stream. Firms can offer Bill.com to their clients either as a referral or in a service bureau model at a cost of $15 per month per user (there is a 10 percent discount if the accounting firms uses Bill.com), which includes unlimited transactions and document storage. Bill.com used in conjunction with the accounting firm’s guidance and support can reduce the need for a client to learn the intricacies of accounting software. Bill.com’s “roles” feature results in the separation of recording, approving and paying accounts payables duties, thus greatly improving internal controls in small and mid-sized businesses.

If the accounting firm elects to be a part of the Bill.com process, they will have a console portal for setting up the client and will be able to specify who gets billed for the service — the firm or the client. CPA2Biz and Bill.com offers a “branding option” so that a client accessing Bill.com will see the accounting firm logo and other information. This is an important feature that will raise the value of the service in the eyes of the client.

Conclusion

Accounting firms need resources. Since new personnel are scarce and expensive, accountants are looking to technology to improve efficiency and effectiveness. SaaS will be critically important to accounting firms as they increase their use of technology by reducing the total cost of technology ownership and by freeing up valuable staff and management resources for other uses. Additionally, the SaaS model reduces the risk of failure. Since firms will not be making a huge up-front investment, they are able to test the waters before jumping into the deep end of the pool.

Bill.com can greatly reduce the cost of processing accounts payable in small to mid-sized businesses and it can reduce the errors and irregularities that often plague the payable function and improve the businesses cash flow position. The alliance of CPA2Biz and Bill.com offers a valuable opportunity for firms to generate new fees, increase efficiency if the firm is currently performing AP processing services for clients and firms can improve their own operations by using Bill.com.

Expect to see new SaaS offerings for our traditional vendors as well as from new upstarts. The resulting vendor competition will be good for our industry and will drive innovation up and costs down.

Tom C. Davis, owner of Tom C. Davis, CPA LLC and President of Knowledge Concepts, Inc., has an extensive background in technology consulting. His consulting practice has reached over 2,800 accounting firms in the last 32 years of practice. Headquartered in Valdosta, GA, the firm also serves the local community with general CPA and technology integration services.