virtual FD concept

How payment technology could close the loop on the virtual CFO model

4th Jul 2018
Save content
Have you found this content useful? Use the button above to save it to your profile.

In the last of his three-part series on accounting tech trends, Ben Smith looks at how emerging payment execution technology could close the loop on the virtual CFO model and wraps up his series with examples of the things an ambitious practice could be doing in 12 months’ time.

Not everybody wants to build a virtual CFO (VCFO) practice, but there is an established direction of travel away from compliance services and towards an advisory model. By 2019 you and your clients are going to have more options to execute payments than you do today.

You, or your client, will no longer need to create 12 (or however many employees) different internet banking payments to process the monthly payroll (which is only a problem if your bank doesn’t provide that anyway). You’ll be able to execute one-off or scheduled BACS payments, individually or in bulk, instantly reacting to cash flow management demands, and you won’t even need to access the bank account to do it.

This is about closing the loop on the VCFO model, where you, as the accountant, can provide a truly outsourced finance function, including the management of cash, payments and cash flow.

We’ve seen a few innovations in the accounts receivable space (GoCardless being a prominent example), but the innovations on accounts payable have largely been the preserve of enterprise-facing technology suppliers, not SME vendors. We’re going to see at least two models come to market in the next 12-18 months.

  • Two-way bank feeds: Cloud accounting vendors will overlay existing bank feeds with multi-directional data flows. This will take a while to complete, and you’ll have the situation emerge where you can execute a payment within one package via one bank, but not with another. It will happen though. I suspect that we’ll start to see these opportunities to execute payments take the form of a practitioner-side interface too.
  • Middleware products: In the meantime, we’ll see the emergence of middleware products that won’t rely on bank feeds being in place. You’ll be able to link multiple accounting software products into this middleware interface and execute payments from relevant linked bank accounts. It’ll be clunky at first, with the potential for some required prepayments in the early iterations, but this will improve quickly.

In either case, there are going to be all kinds of issues around the equivalent of agent access, and you’ll probably see your institutes and the ICO scramble to provide guidance on this area. But if you think about the practical application of this technology, it’s really aiming to solve some of the most difficult-to-shift administration burdens affecting small businesses:

  • It’ll take a fraction of the time it previously took to actually make payroll payments
  • You’ll be able to bulk-pay multiple suppliers via one interface without setting up individual payments each time

I suspect the vendors in this space will take a little longer to gain traction compared to their accounts-payable counterparts. After all, you’re more likely to invest in tools that help you get money into the business than tools that help you move it out again. The progressive firms that really want to be the pro-advisor will see the opportunity this proposition presents for true market differentiation.

Wrapping it all together

That’s it for my three-part series. If you haven’t read the pieces on the platform vs suite debate and why banks want to be accountants’ best friends, you can find them here.

To wrap up this reckless speculation, and perhaps extrapolate things even further, let’s imagine a scenario where your bank, accounting software and practice tools are all connected via either a platform or a suite/workspace - with HMRC and Companies House APIs aligned too.

  • Your practice management tool will recognise that client ‘A’ is due to complete a quarterly MTDfB update
  • You push the data from the accounting software into your MTD tax tool to compute the liability
  • Your workflow then notifies the client what they have to pay, and asks them to authorise you to make that payment via the two-way bank feed in the accounting package
  • You execute the payment, which is validated back into the practice management tool, which then checks in with the HMRC API to validate that the right payment has been calculated, paid and accepted
  • Your practice tool then tells your client they’re MTD compliant for this accounting period

There are *lot* of things that have to happen to get to this point, but you can see how this, at least conceptually, may work in the future.

These are the things we may well be talking about in 12 months’ time though. How much progress each area actually makes in that time remains to be seen - but it’s something we’ll be keeping a close eye on at AccountingWEB in the months to come.  

Replies (10)

Please login or register to join the discussion.

By ollyevans
04th Jul 2018 17:16

Holding breath for this. Currently we can only really do payments with client money bank accounts and the whole raft of regulation that comes with that. Some firms ask clients to share bank logins, not sure that's a good idea. Will be interesting to see how the software records 'director approval' of a payment. We've certainly turned down payment work because the regulations make the service noncommercial.

Thanks (3)
Glenn Martin
By Glenn Martin
05th Jul 2018 15:14

An interesting insight Ben.

As Olly mentions, there will be significant hoops to jump through, but I think out sourcing credit control and bill payment processes perhaps presents a better opportunity to the more traditional practice model,
than the "everyone needs to do advisory" message currently been pushed on an almost hourly basis, which only really applies to the top 25% of a general practice fee bank.

I look forward to catching up with you in May 2019 to see how the rise of the machines pans out.

Thanks (1)
Replying to Glennzy:
By ollyevans
05th Jul 2018 11:40

I agree Glenn, there is a lot of demand from clients to run their bill payment processes. But it's a risky service - the impact of an error is likely to be higher than the fees charged. All do-able if the client is prepared to conform to a standard process and cloud technology. How many conversations will we have like: "[director] I know I approved the invoice for payment but we've fallen out with the supplier, why did you pay them?" or any of a 100 similar everyday business scenarios.

Thanks (1)
Replying to ollyevans:
Glenn Martin
By Glenn Martin
05th Jul 2018 15:46

Fair point Olly.

Not many of my clients would be keen on something that speeds up how easily they pay customers. They push me for new alternatives for late payment excuses, to replace "The cheques in the post"

Maybe just focus on getting clients paid quicker, and wait until the software catches up for the other.

Thanks (0)
Replying to Glennzy:
Ben sitting at a We Work Anywhere office
By Ben Smith
06th Jul 2018 09:40

Absolutely Glen, Olly.

There will need to be both some sort of 'agent access' protocol developed, and the institutes will need to get ahead of this from a governance/advice perspective.

This is possibly the biggest barrier to making it all work.. "Who is able to carry out which tasks and when?"

Maybe we should ask HMRC for advice on build an agent access strategy?

(perhaps not)

Thanks (0)
By Charlie Carne
05th Jul 2018 17:05

This will be a huge advantage for practices, as we’ll be able to manage client cashflow for them and set up payments. Ideally, the “practitioner-side interface” will allow the accountant to set up the payments and for the client to then log in and simply click ‘yes’ to any or all of them. I would not want to the ability to extract the funds from the client’s account, but merely to set up the payments for them to authorise.

Because of this, I hope that QBO rapidly roll out granular user permissions, so that there can be a specific permission for allowing payment requests to be sent from QBO to the bank. I'd grant this permission only to a senior person at the client but not to the external accountant.

Thanks (1)
By ShayaG
05th Jul 2018 18:27

There is a BACS file download facility currently available from Xero, but I appreciate it's not as slick as it could be.

Thanks (0)
Replying to ShayaG:
By Charlie Carne
05th Jul 2018 19:09

In all my years as an accountant, I have never known any client that uses BACS. It tends to be used only by large companies, as it is slow, expensive and complex to set up.

Thanks (0)
Replying to charliecarne:
Ben sitting at a We Work Anywhere office
By Ben Smith
06th Jul 2018 09:36

I'm pretty sure you're about to see the arrival of various BACS providers offering a much more accessible bureau style service.

Cost isn't the only challenge with this model, but it will become less of a barrier over the course of this year.

Thanks (0)
Replying to charliecarne:
Richard Sergeant
By Richard Sergeant
09th Jul 2018 09:29

There's some interesting alternatives starting to arrive like Telleroo - who use the Faster Payments service.

I'm sure there will be others on the horizon too.

Thanks (0)