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App insights: The tools of virtual finance

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Over the past year, the virtual finance director trend has visibly intensified in the UK. AccountingWEB's software insights service offers some clues on which apps these practitioners are using.

2nd Sep 2022
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Like so many trends, finance outsourcing had established itself among accountancy’s early adopters, but jumped up to a new level when Covid-19 hit. Clients who leaned heavily on their accountants for business survival advice during the pandemic gained a new appreciation of how valuable their accountants could be. Since then, they have been much more open to letting go of finance and admin processes.

As Tom Herbert reported, the increase in in-house bookkeeping to manage the transition to MTD ITSA opened another gateway into virtual finance services for many practices.

With data capture apps and bank feeds pumping up-to-date transaction data into cloud ledger systems, firms are packaging the information into a diverse range of services from management reporting and forecasting through to credit control, payments and funding.

While no single app can deliver all these services yet, we are definitely seeing the evolution and expansion of the tools being deployed by a new generation of virtual FD practitioners. To set the scene for an autumn season of content delving into this emerging market segment, we’ve dipped into detailed findings from our insight research to identify which apps are playing the biggest role in delivering those services.

The first wave

Like many trends, the outsourced finance function started life in the higher altitudes of the corporate world and were hosted by top tier firms on enterprise systems like SAP, Oracle Financials, NetSuite (now part of Oracle), Exact and Microsoft Dynamics. 

The licence costs and overheads associated with these systems and services were beyond the reach of 95% of typical UK businesses, but cloud accounting in the shape of Xero brought the required functionality within the reach of ordinary accountants and businesses.

If you want a date for this breakthrough, go back to the second big Xerocon conference in Taupo, New Zealand in February 2011. That's when the cloud accounting challenger Xero introduced the first five apps in what it called its “ecosystem”: Spotlight Reporting (reporting and analysis), Receipt Bank (expenses and transaction capture, now known as Dext), Vend (point of sale), Deputy (staff scheduling and timesheets) and Expensify (expenses management). 

All those apps have a role to play in putting transaction tools and management information in the clients’ hands, while allowing the accountant to validate the data, compile reports and pull the strings in the background. Pioneering practitioners - including many management accountants - immediately recognised their potential.

Within two years of that first ecosystem announcement, around a dozen entrants to AccountingWEB’s annual practice awards identified themselves as offering some variation of outsourced finance service (other than payroll). 

Receipt Bank was the most widely used app among these early frontrunners and the revamped Dext stable remains in pole position among virtual FD operators. The prominence of data capture among this user base makes perfect sense. Getting transactions into the ledger quickly and reconciling them to electronic bank feeds is an essential step to producing meaningful financial information for business clients.

Reporting and analysis apps

Next most prominent were the reporting and analysis apps, which were split between Spotlight Reporting, CrunchBoards (now known as Futrli) and assorted other tools, including Fathom, Float and Fludily, not to mention DIY reporting packages and Excel at some practices.

Spotlight Reporting in particular refined its outputs to cater for “virtual CFO reporting, strategic planning, goal-setting, wealth management, budgeting, forecasting, multi-entity consolidation and benchmarking”. But in the UK, it ran into competition on this front from CrunchBoards (now Futrli), a local rival that gained a lot of followers for its flexible, end-user friendly reporting board and tile format.

The latest wave of AccountingWEB’s insight research shows how virtual FD-style forecasting, planning and analysis (FP&A) tools have been evolving over the past decade, seemingly in parallel with the outsourced finance movement. 

Fluidly and Float gained ground during the pandemic, but the more they have been picked up by client businesses, the less they focused on supporting accounting practices offering virtual FD services. During 2021-22 newcomers Syft and Clarity HQ started to show up among this firms. 

After all this market and product development work, Adaptive Insights, Castaway, Fathom, Float, Fluidly, Futrli and Spotlight achieved a 17% share of the FP&A apps category in AccountingWEB’s Q2 State of the Nation software report. 

While remaining intensely competitive, this segment was among those showing the biggest potential growth, particularly among the small/early adopter and medium/large practices most likely to offer virtual FD services, according to AccountingWEB head of insight Julian Green.

Data capture and expenses trends

The input side of the virtual finance app portfolio moved much more quickly towards consolidation within the main accounting platforms when Xero acquired Canadian data capture app Hubdoc in 2018 and Sage followed suit by buying AutoEntry in 2019.

When it comes to snapping a till receipt, any cloud accounting platform with claims to completeness will have a companion expenses app.

But those working as external finance service providers don’t just want to capture transactions and data into their ledgers, they need to see how well clients are entering their transactions so the books are up to date and in good shape. And not all virtual FDs will be preparing the books themselves or supporting clients on the same accounting system.

The diverse nature of outsourced finance service provision left the door open for platform-independent tools to monitor client data flows and the status of the records. 

This is territory inhabited by Dext and its European counterpart, datamolino. There are accountants delivering outsourced FD services with QuickBooks, Sage and AutoEntry, but Dext has compiled a suite of apps to automate the "pre-accounting" portion of the virtual finance service model. Alongside its flagship Prepare data capture tool, Dext has an Ecommerce module to import transaction data from online marketplaces. The Dext Precision data quality management tool and client dashboard is also popular with virtual FD practitioners like Kinder Pocock, de Jong Phillips and Pillow May.

In the 2022 State of the Nation software survey, Dext was the most used data and expense management add-on, used by 19% of respondents, followed by AutoEntry (14%) and Hubdoc (11%). Dext was used most by small, early adopter and medium-sized firms, the leading constituents of the virtual FD movement.

Follow the money

At the other end of the pipeline, some practitioners are moving into collections and credit management. It’s still an embryonic part of the virtual service package and is being led by medium-size firms. Among this pioneering group, Chaser is the most commonly used app, followed by Fluidly and Satago. 

This segment is beginning to see new hybrids and overlaps, where apps handle more than a single function. Satago doesn’t just give the practitioner a credit control dashboard and chasing tools; if the client is looking at a cash shortfall, it can point them to an online invoice finance mechanism to plug the gap.

Fluidly, now part of the OakNorth digital banking group, started life by automating forecasts and cashflow projections. But since 2020, it too can give users instant access to online finance sources if a potential shortfall is identified.

Elsewhere, the virtual FD community is also leading the way by implementing fintech funding platforms such as Capitalise and Swoop and direct online finance providers like iwoca and MarketFinance. But looking at the latest usage patterns, Green commented that the expectations for growth in app-based funding is more uncertain than for better established virtual FD tools.

Shifts in virtual FD app habits

After more than a decade of experimentation and advance in this field, we are beginning to see Xero, QuickBooks and Sage hosting more of the key functions on their cloud accounting platforms.

Alongside this functional and market consolidation, early pioneers of the virtual FD art have started to thin out their tech stack portfolios. Explaining her focus on paring her tech stack down to a minimum, Pamela Phillips commented: “It’s way easier to manage teams and automate if we’re really tight in what we do.”

Once you’ve chosen the right engine, her advice is to start with the tools that you can roll out to the largest portion of your client base - Dext in the case of de Jong Phillips, “because you can apply it to every client and then move on to cashflow and management reporting, because they’re generic and every client can use that”. 

The AccountingWEB software user insight programme is continuing to survey accountants on the service lines they’re offering and apps they’re using. As the findings emerge from our latest quarterly insight survey, keep an eye out for further analysis of the key app components covered in this piece, and more advice on how to deliver virtual finance services.

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