If you think finding the right accounting software for SaaS companies is difficult, this post is for you. We’ll run through the key features to look for and name a few options we think work well. Then, we’ll look at how to choose the best tool for your needs while avoiding the challenges with using one.
Key Features to Look for in Accounting Software for SaaS Companies
Automated Revenue Recognition
SaaS companies need accounting software that can handle complex revenue models. They deal with things like subscriptions, usage-based fees, and various add-ons, which involve intricate calculations. They also need to juggle dynamic updates to features, pricing, and customer contracts.
Revenue recognition standards for SaaS companies, like ASC 606, are complex. To comply, they need software that makes precise calculations. Automation improves efficiency so accounting teams can focus on strategic analysis.
Subscription Billing and Invoicing
Look for software that allows you to customize and send automated recurring invoices on subscription due dates. The tool should also manage prorated billing for partial use periods so you always charge customers fairly. We love automated payment reminders and late fee calculations, too.
The best tools support multiple payment methods to make things easier for customers. To make things easier for you, look for software that handles automatic tax calculations for better compliance. It should be able to manage rule and rate updates to apply taxes correctly based on location.
If possible, take advantage of self-service customer portals where people can log in to view their payments due, billing history, and subscription details.
Multi-Entity and Multi-Currency Support
Accounting software for SaaS companies must be able to deal with multiple subsidiaries or divisions. It needs to help you consolidate financial data from these different sources into a single report.
This software needs to support autonomy for individual entities but provide centralized oversight. This is all while ensuring compliance with local accounting standards and regulations.
Suitable accounting software also needs to accurately manage conversions for transactions in different currencies. It must compute based on current exchange rates and record and manage foreign exchange gains and losses. In addition, it needs to be able to generate financial reports in the local currency of the individual business entities.
Advanced Financial Reporting and Dashboards
Especially important for complex structures, the best accounting software for SaaS companies needs to be able to generate custom reports. These reports will be able to look into specific data points to show trends and patterns. For example, you will want to know about KPIs like monthly recurring SaaS revenue, customer acquisition cost, and customer lifetime value.
A dashboard that shows these trends is useful, and you’ll also want financial forecasting and budgeting functions. The goal is to be able to compare periods of financial performance across different products and against industry benchmarks.
Integration with Other SaaS Tools
Most SaaS companies will use more than just accounting software. The ability to integrate these different tools will further improve accuracy and consistency across systems. This, in turn, ensures better decision-making ability with unified data and metrics.
Top 5 Accounting Software Options for SaaS Companies
Xero
Xero is popular cloud-based accounting software that provides automated workflows and bank reconciliation. It integrates with a wide range of third-party applications.
QuickBooks Online
QuickBooks is a major player in the accounting game, and their online model is a great option for real-time access to financial data. This tool is easy to navigate and is widely used and trusted. It also has a mobile app, allowing on-the-go management.
Sage Intacct
Sage Intacct serves mid-sized and large enterprises well, making it suitable for SaaS companies that are scaling up. It’s highly customizable and provides advanced features like consolidation, revenue recognition, and multi-currency support.
NetSuite
NetSuite is ideal accounting software for SaaS companies that are growing and have complex financial needs. It provides several features like CRM and ERP alongside ecommerce functionality. This tool is also highly customizable to meet specific business requirements.
Zoho Books
Zoho Books is another cloud-based accounting software with an intuitive user interface. It integrates seamlessly with other Zoho applications, and is easy to learn, even for non-accounting professionals.
How to Choose the Best Accounting Software for Your SaaS Company
Assessing Your Company’s Size and Complexity
Small businesses with lower revenue typically don’t need complex accounting systems. Medium-sized businesses and larger operations need more advanced features that scale well.
The tool must be able to handle higher revenue and growth rates, and complex financial transactions. It must also manage multiple entities or subsidiaries well, and maybe even international operations and consolidation requirements. Certain industries like healthcare and manufacturing also have specific accounting needs.
Comparing Costs and Subscription Models
Always compare payment models when choosing accounting software for SaaS companies. Annual plans often provide discounts. Watch out for additional charges based on the number of users, included features, transaction types, etc.
Some providers charge fees to implement the software and migrate data, as well as set up customizations. Not all software offers free training and customer support. Data storage, extra integrations, and updates may also incur additional costs.
Always look at the value you get for your money rather than just the actual cost. Calculate the potential ROI alongside long-term costs.
Evaluating User Experience and Support
If your users are not professionals, go for accounting software that’s easy to navigate and understand. You also want to be able to customize the interface according to your needs and preferences. Having a mobile app is also very convenient.
Look for tools that have robust reporting and analytics functions that are easy to use. It should also easily integrate with the other tools your team uses.
Assess their knowledge base and other resources provided to answer common questions and troubleshoot common issues on your own.
Look into the level of customer service you get, including accessibility, and proactive support for updates and maintenance. Check if they have training and onboarding available, especially for more robust software functionality.
Testing Software with Free Trials or Demos
Focus on the most important features you need in your accounting software. Run down a checklist as you test and evaluate each tool.
Always use a copy of a sample set of your data so you can simulate real-world scenarios. Test data entry processes, customizations you need, reporting features, integrations with your other tools, the user experience, and mobile accessibility.
Test their knowledge base, online resources, and customer support with real questions and issues.
Seeking Expert Advice
If you have access to a financial advisor, ask them to check the list of accounting software for SaaS companies you’re evaluating. They can give you more tailored recommendations from your actual needs to improve efficiency.
Other SaaS companies can also provide valuable insights into various accounting software options.
Don’t hesitate to ask providers about features, the user interface, pricing, support, implementation, and integration capabilities. Feel free to get into other aspects of the software’s suitability for your needs, too.
Common Challenges in Using Accounting Software for SaaS Companies
Compliance with Revenue Recognition Standards
Make sure the tool you want to use accurately prorates revenue for partial periods, whenever the subscription starts or ends. It needs to recognize termination fees as either revenue or expense and account for renewal options and fees.
If you bill based on customer usage, your accounting software needs to be able to measure appropriate performance obligations. It should also account for variable consideration like discounts and rebates.
Not all software can help with distinguishing between contract modifications and new contracts, or recognizing deferred revenue and foreign exchange gains or losses. You must have clear and consistent revenue recognition policies that align with ASC 606 and IFRS 15 SaaS accounting standards.
Managing Complex Subscription Models
Accounting software for SaaS companies needs to manage accurate billing for variable pricing and accurately allocate revenue within bundles. This includes promotional offers and discounts and renewal processing.
Not all tools can track customer churn rates or generate reports to forecast recurring revenue.
Integration with Existing Systems
Look at the tools you already use to check integrations before choosing a tool. Data consistency in real time across different systems is vital. Watch out for issues with customizations, including performance slowdowns and system instability.
Be careful not to get stuck with one specific vendor or integration solution. Note the costs of implementing and maintaining integrations, too.
Ensuring Data Security and Privacy
Only use accounting software that ensures robust data encryption and security measures like access permissions. It must comply with all required data privacy and security standards, like GDPR, HIPAA, and PCI DSS.
You also want a good system for keeping regular backups to protect against data loss.
Frequently Asked Questions
What is the best accounting software for managing complex subscription models?
The best software for can handle tiered pricing, usage-based billing, and add-ons while accurately recognizing revenue according to accounting standards. It needs to prorate revenue for partial periods, integrate seamlessly with other systems, and be customizable for specific needs and reporting requirements.
How do I ensure my accounting software is compliant with ASC 606 and IFRS 15?
Check with the provider to confirm ASC 606 (US GAAP) and IFRS 15 (IFRS) compliance. Then, test the software to make sure you can configure it properly. Make sure to keep up with software and security updates.
Can I use general accounting software for a SaaS company, or do I need something specialized?
General accounting software works, but specialized SaaS tools are better because they can handle specialized functions for unique SaaS revenue models.
How do I handle multi-currency transactions in SaaS accounting software?
Most accounting software designed for SaaS companies can effectively manage foreign exchange rates and currency conversions. Make sure your software pulls in the latest exchange rates and has the correct tax configurations.
What are the potential drawbacks of using free accounting software for SaaS companies?
Free software will never have the same features and functionality as paid software. It rarely handles complex tasks like subscription management, usage-based billing, and revenue recognition, which you need in a SaaS business.
Free software also has limitations in the areas of customer support, data security, scalability, and integration. You will probably face lock-ins and hidden costs, too. Moreover, don’t expect customization options.
What Is AccountsBalance?
AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
In Summary
We gave just five options here for accounting software for SaaS companies. They key, though, is in the features, challenges, and selection tips we gave. The hope is that you can apply these to find the best fit for your specific situation.
