What is cloud accounting? Definition & why business need it

Still working in legacy accounting systems that tether you to a single machine and prevent real-time collaboration?

Cloud accounting may be your key to unlocking smarter financial management.

In this article, we’ll discuss what cloud accounting is, how it works, and the key features you’ll find in a solid cloud accounting software platform.

What is cloud accounting?

Cloud accounting uses internet-based software to handle financial records and operations, storing data securely on remote servers. It gives users instant access to current financial information from any device, enabling real-time collaboration, automation of routine tasks, and automatic backups.

It replaces traditional desktop systems, and in the process, minimizes manual entry and connects seamlessly with other business applications, creating a more streamlined and integrated workflow.

How cloud accounting works 

Cloud accounting software operates entirely online. This means that users access their financial data through a web browser or app rather than a locally installed program.

The big win here is that with cloud accounting, business owners, accountants, and finance teams can log in securely to their accounting system from any device that has an internet connection. They can work on a desktop computer in the office, or from a laptop or phone at home or when out taking meetings.

Remote data storage plays an important role here.

Instead of storing data on a single computer, cloud systems encrypt and store information on secure servers. This ensures that sensitive information is protected from loss or damage, and is also automatically backed up in case of hardware failure.

That’s not the case with traditional accounting software. Here, if your computer dies, and you don’t have a data backup, you risk losing that critical financial information.

In cloud accounting, all changes made within the system are updated instantly via real-time synchronization.

For example, when one user records an expense or updates an invoice, that information becomes immediately visible to everyone with access, regardless of the device they’re working on.

This keeps financial data consistent and up to date across all devices and users, improving accuracy and collaboration.

Benefits of cloud accounting 

Cloud accounting offers businesses numerous benefits, including greater flexibility, efficiency, and control over financial information.

Here are the seven top benefits a cloud accounting platform provides:

1. Accessibility and mobility: Users can access the accounting software anytime, anywhere, using an internet-connected device with browser capabilities.
2. Collaboration: Multiple users can log in simultaneously to review and update financial data in real time. Improving coordination between internal teams, advisors, and accountants.
3. Automation: Cloud software can often automate routine financial tasks like invoicing, expense categorization, and bank reconciliations, minimizing manual entry and reducing the risk of human error.
4. Security: Financial data is stored on secure, encrypted servers managed by the provider. Continuous backups and multi-factor authentication protect against data loss, breaches, and system failures.
5. Cost-effectiveness: Cloud accounting typically operates on a subscription model, meaning businesses can avoid large upfront software costs and spread out expenses across the financial year.
6. Scalability: Cloud systems grow with your business. You can easily add users, expand data capacity, or integrate new modules without the need for additional hardware or complex installations.
7. Integrations: Most cloud accounting tools also offer native integrations, allowing finance teams to seamlessly connect with other business tools, like CRMs, payment processors, payroll systems, and expense management software.

How cloud accounting differs from traditional accounting 

Cloud accounting and traditional accounting tools achieve the same fundamental goals: storing and reporting on financial transactions.

There are a few important distinctions, however, that make cloud accounting systems a smarter option for most businesses.

Local installation vs. online access

The main difference is that traditional accounting software is typically installed on a single computer. It requires manual updates, backups, and cumbersome file sharing between users. 

Cloud accounting, by contrast, operates entirely online. With cloud accounting, data is stored on secure remote servers, and information is updated and accessible to all in real time.

In traditional systems, financial records are accessible only from the device where the software is installed, limiting flexibility and collaboration. Cloud accounting removes those barriers by allowing users to log in from any location and work simultaneously on the same data.

Manual data management 

Manual data entry and version control issues are common with traditional, single-computer software. Teams often share files via email or external drives, and so various duplicates and problems finding the most up-to-date version typically arise.

Cloud accounting platforms solve this by automating data syncing and maintaining a single updated version, with a verifiable version history often available to those with the proper access.

Security

Since desktop systems rely on local storage and manual backups, data loss and corruption are common. Cloud accounting systems, however, use encryption, automatic backups, and strictly enforced access controls to better safeguard information and prevent loss.

Scalability

While traditional systems often require new installations or costly upgrades to support growth, cloud solutions simply adjust to changing business needs through flexible subscription plans and integrations, meaning they are a much more flexible option for growing companies.

Key features of cloud accounting software 

Cloud accounting platforms are designed to simplify financial management. They take traditional accounting software to the next level, improving accuracy, accessibility, and insight.

While every tool offers different specific functionality, most share a core set of features. These are the most common features of cloud accounting software:

• Real-time reporting and analytics tool that gives users instant visibility into cash flow, expenses, and profitability
• Integrations with other business tools to help create a unified financial ecosystem
• User-friendly interfaces and mobile access, designed with intuitive dashboards and guided workflows that suit both professionals and non-accountants 
• Automated bank feeds that are imported and categorized automatically
• Invoicing and payment processing, along with payment status tracking and solutions for accepting online payments
• Expense management tools that simplify tracking, tagging, approval, and receipt capture 
• Data security and protection protocols such as encryption, multi-factor authentication, secure data centers, and continuous backups

Transitioning to cloud accounting 

Moving from traditional accounting software to a cloud-based system can significantly improve efficiency and visibility, but it requires careful planning to ensure a smooth transition.

Follow these steps to migrate from traditional accounting to a cloud-based solution:

1. Evaluate your current system

Start by reviewing your existing processes, data accuracy, and software dependencies. Identify which financial records and features need to be transferred.

2. Select the right platform

Choose a solution that aligns with your business size, budget, and functional needs, prioritizing integrations with the tools you already use.

3. Prepare and clean your data

Before migrating, review and reconcile all accounts to ensure information is accurate. Removing duplicates and outdated entries will help prevent future discrepancies.

4. Migrate and test

Now, transfer your data, then verify that all balances, reports, and settings match your old system before beginning new work in your cloud accounting system.

5. Train your team

Finally, provide adequate training and documentation to help staff adapt quickly to the workflows and features offered by the new system.

Best practices for a smooth transition

As you move through the transition process, keep these best practices in mind to avoid common pitfalls and keep the changeover seamless:

• Start with a pilot run by testing on a small set of data or users before fully making the switch
• Keep your old software active during the initial phase to confirm accuracy and continuity after switching
• Establish clear access controls by assigning role-based user permissions, helping to protect sensitive financial information 
• Leverage the onboarding support and tutorials your new software vendor offers to shorten the learning curve and reduce the internal training workload

Considerations for small and mid-sized businesses

SMBs often benefit the most from cloud accounting because it eliminates the need for expensive IT infrastructure and manual updates.

There are a couple of important considerations that smaller businesses should bear in mind, however. These include:

• Being wary of hidden costs like support charges and overage fees
• Choosing a scalable pricing plan that grows with your business 
• Ensuring reliable access to the internet and backup connectivity options are available 
• Confirming that the platform supports local tax compliance and reporting requirements

Common challenges and solutions 

Cloud accounting clearly delivers some major advantages, but making the switch isn't always easy, and businesses often face challenges during both setup and daily use.

Identifying these issues early and taking proactive steps can make implementation smoother and long-term adoption more successful.

1. Data migration and integration

Moving from traditional systems and connecting multiple tools to your new platform can result in errors, missing entries, and configuration issues.

To overcome this common challenge, start by reconciling all accounts and cleaning up existing data. This will help ensure accuracy to begin with.

Then, use the provider’s onboarding support or data import tools to help simplify the process, and engage in a testing process before completing the transition to confirm that reports, balances, and integrations are functioning correctly.

2. User adoption and support

Getting a new software platform installed is one thing. Getting your team to actually use it is another. Teams that are used to traditional and dated desktop software often underuse the more advanced features offered by modern cloud accounting platforms.

The best workaround?

Provide structured training, designate an internal champion to answer questions, and leverage the vendor’s support channels and education content to reinforce adoption.

3. Internet dependence 

Since cloud platforms rely on stable internet connectivity, businesses that operate in low-coverage areas may face challenges.

Some providers offer limited offline functionality, which is a smart move if connectivity is a problem for you. Finding an accounting platform that offers a solid mobile app is another good backup.

4. Data security and compliance

Businesses may worry about the safety of sensitive data and meeting compliance obligations.

You can overcome this challenge by choosing a provider that complies with recognized frameworks like GDPR or SOC 2. 

Additionally, check to ensure the system uses the latest encryption methods, provides granular access controls, and performs regular security audits.

5. Cost management

Subscription pricing can sometimes appear, or even be, higher than traditional software costs.

What needs to be considered here, however, is the overall return on investment, which includes factors like:

• Reduced IT maintenance
• Automated updates
• Time saved through streamlined workflows 

BILL: Your cloud accounting platform's best friend 

Moving from traditional to cloud-based accounting software is a powerful way to improve financial visibility, minimize risk, and enhance collaboration within your finance team.

If you’re really looking to take things to the next level, BILL’s financial operations platform integrates with your accounting platform to deliver greater spend management, deep analytics, and accounts payable automation.

Explore BILL’s accounting software integrations today.

Frequently asked questions

Is QuickBooks cloud-based? 

QuickBooks offers both cloud-based and desktop versions, but its most popular and widely used product today is QuickBooks Online, which is fully cloud-based.

Pro tip: BILL offers a powerful native integration with QuickBooks Online.

What is the role of a cloud accountant?

A cloud accountant uses online accounting software to manage financial records, automate processes, and provide real-time insights. They ensure data accuracy, security, and compliance while helping businesses integrate tools, streamline workflows, and make informed decisions.