Cloud accounting software – our quick review 2021
If you’ve not yet been convinced of the benefits of using cloud accounting software – check out our previous post which gives you an overview of what you may be missing out on.
In this post I am going to look at a few key providers of online accounting software, and give my opinion about how good it is, and whether its worth the cost.
We are going to look at
Free Cloud Accounting Packages
Premium Cloud Accounting Packages
Free Accounting Systems
Quickfile
Honestly, how the manage to keep this free is beyond me. Quickfile may not be all that well known, but the features you get with it puts it competing right up there with the big boys. (Note: Quickfile should not be confused with the highly advertised QuickBooks – of whom I have a slightly different opinion).
The system is slick and free to use for businesses with under 1000 ledger transactions. If you want bank feeds you have to pay a meagre £15 plus VAT per year which is well well worth it, although as an alternative you can choose to upload bank statements (but that sort of takes away one of the key benefits of cloud accounting software).
The bank section allows for bank rules, which are not as sophisticated as the likes of Xero. When categorising transactions it does a very good job of matching against invoices unpaid and should you need something that is not already in the system it is quite flexible in allowing it.
One of my favourite features (as an accountant) is the ability of Quickfile to prepare and complete the paperwork surrounding a dividend. Dividends require proper legal paperwork to be completed, including things like dividend vouchers (see our post here for a more detailed account of dividends). What I particularly like about this is that it can make the distinction between interim and final dividends – a seemingly pedantic but actually very important distinction. No other software that I am aware of does this, and I take my hat off to the Quickfile team for doing a thorough job on this feature.
Quickfile has a whole plethora of API connections, as well as being able to link in to Zappier, opening up a veritable forest of integration options. My favourite integrations are Stripe and GoCardless payment processors. It does not, however, handle the processing fees so these need to be manually added in, which is a disappointment.
It also has a very easy to use open API if you want to develop or connect your own app to it.
Invoicing is very smooth and customers get their own portal to see their account, which is a nice touch. You can bill in both hours/time or units, and invoices can be repeating or single invoices. Quite cleverly when you set up a repeating invoice you can add a bit of code so that instead of saying something live “Monthly fee”, it will say “October fee”, and the next month “November fee”.
There is a lot of customisation as to how it can look to the customer, and even (on the premium version) the ability to have different “trading styles” for the different divisions or brands you might be trading under.
VAT works well, although its not as simple to make changes to transactions once they have been submitted in a VAT return, unlike in Xero and FreeAgent, which handle this well.
The reporting is a touch limited, although I quite like that. You get more enhanced reporting in the premium version, such as the monthly profit and loss which again, I find handy but not a necessity.
For a long time they did not have an app for your smart phone, but thankfully they now have that fixed. Its pretty good, but with reduced functionality that the web version.
If I were to level any improvements I would want to see – the bank fees on the payment processors seems like it should be an easy win for them. It would also be good to have an out of pocket expenses module, like in FreeAgent. Refunds are also – it has to be said – very fiddly. I can see what they are trying to do, but it always seems to require some sort of work around to get right.
All in all it is still just a bit too complicated for non-accountants and sometimes clients will make some mistakes that are difficult to spot unless you are an accountant, but for free….its pretty damn amazing! If you want something super simple – its probably not for you. If you are prepared to put a bit of effort in (but honestly not much) you will be richly rewarded in high features and low price.
Wave Apps
For some reason this seems to be a very popular free cloud accounting software. It’s a US company (and you can sort of tell when you get into the detail) and is paid for by restricting you to using its own payment processor. Its not a bad trade off, especially if you don’t use one. The payment processing price is not incomparable with Stripe and GoCardless
Wave Apps is nice looking and has good apps for your smart phone but there are two major issues that I now have with Wave.
One is that it has take a strategic decision not to adopt Open Banking, the standard in the UK that governs the transfer of bank data between systems and hence the thing that makes bank fees possible. Unlike with Quickfile, which has an option to bolt on bank feeds, Wave can’t handle bank feeds any more. It used to be able to until a few years ago, but this is a major issue.
The other is how it handles VAT, or, in my opinion doesn’t really. Being a US company it applies a “sales tax” to transactions, which can be set at the VAT rate. Prima facia this looks like it would do the trick, but VAT is so mind-bogglingly complex this blunt instrument simply will not deal with VAT correctly. There is no point in investing your time into a system, with one of the main benefits being taking the risk out of VAT, for it to require the sort of review that would be required of a manual VAT return.
If you take anything away from this it is this – if you are VAT registered – don’t use Wave Apps. Just don’t do it, OK!
So…assuming the only people still reading this are not VAT registered…
Wave is quite a good system apart from the above two issues. The reporting is quite good, invoicing effective and the scanning of receipts seems to work well.
Premium Accounting Systems
Xero
Xero is brilliant. Really it is so excellent I’m not sure where to start. And its not just the system, the training they have put around it and the support is also really really good.
However, there is a reason they need to put a whole training academy (no really!) in place. Xero is also complex – though not complicated. There is just a lot to it with huge flexibility.
If you are small – a freelancer or a contractor, or just are quite small – you may find Xero has too much fire power for you – you may not need everything it can do. However I have plenty of freelancers and contractors on Xero who are happy.
Whilst it is a New Zealand based company, but listing on the stock market in Australia, it is fair to say that Xero has invested heavily in the UK, so that unlike Wave, its overseas roots does not in anyway hold it back.
Perhaps the most negative thing about Xero is the price (which when you pause, in the grand scheme of things is not that much really). There are quite a few packages and they are all quite expensive by comparison to their competitors. Disappointingly whilst open banking reigns supreme in the UK now, there are some banks where they still charge for a connection. We should be over this by now, and I sort of don’t care whether it is the bank or Xero – come on guys just sort that out!
For most businesses you will only need the Standard package (which is £24 per month plus VAT). This will give most businesses what they need, unless they have the need for currency accounting in which case the premium package at £30 is needed.
That said, what you get is basically the best cloud accounting software money can buy.
For me the stand out feature of Xero is its eco-system of apps. It’s established itself as the accounting software to develop for, so almost all new bits of kit, if its going to integrate with an accounting system, will integrate with Xero first.
VAT is handled brilliantly within Xero with very few situations that I’ve come across which it can’t handle. The VAT reconciliation report, which in theory is great, however, has never really made sense, and so, as an accountant, I’ve always ended up doing a VAT reconciliation outside the system.
The ability for automation and its integrations makes Xero well suited to high volume businesses and ecommerce type operations.
The reporting in Xero is very powerful, and there are apps that can make it more powerful, although it does require some careful consideration when setting up.
The bank reconciliation is another well developed part of it. You can have automated or semi-automated rules, cash coding, which allows for some very rapid processing of bank statements, and just reconciliation where Xero makes some intelligent suggestions as to what the transaction may be. There is also the nice touch to leave a note on an unreconciled transaction, so clients can let me know what it is, even if they don’t know what to do with it. This is a useful collaboration tool.
There are too many features to go into here, and as there are new features being added all the time, but there are a few things I would potentially avoid.
I’ve never liked the way Xero does payroll. I understand what it’s trying to do, and it is technically correct, but it never ends up working out. My suggestion is not to run payroll on Xero but use a dedicated payroll software to do it.
Similarly Xero has a paid add on for expenses. Unless you have complex staffing and expenses going on, I would simply avoid this part of the system. Again, things get too complex and the outcome is often not what is desired. If you do have need for an expenses system, it is worth taking the time to visit their academy and make sure you know exactly how things will and should work, before switching it on.
Other than that, though, the system really is excellent. If you need an accounting system that integrates and is powerful, or just a solid accounting system for anything other than the most straightforward businesses – Xero gets my strongest recommendation.
QuickBooks Online
Right off the bat, I should say that I am a QuickBooks Pro Advisor, and so I probably need to be a bit careful about what I say…
QuickBooks is advertised quite heavily on TV with the marketing message that it takes the difficulty out of accounting and tax. I’m just going to leave that statement hanging there…
Suffice to say, I have a few clients on QuickBooks and whilst it looks very swish, my experience of my clients on it has been that the sometimes find it a bit, erm, fiddly.
Unlike Xero, actually getting QuickBooks to reconcile the bank account can sometimes be a bit of a challenge. The unwary user may, without realising it, generate seemingly random additional bank transactions which are then quite fiddly to get rid of.
The system reminds me very much of the sort of accounting system that accountants might build if given the choice, but is not that lovely for non-accountants.
Now in fairness, I know that there are some people who swear by QuickBooks and love it but for me, I’ve not had that experience.
The whole process of accounts, and in fact, everything else, is a bit like running through treacle. Everything just feels like a lot more effort than it should.
The positives for QuickBooks – definitely the price – they can put forward some cheap pricing, particularly if there are offers. I have certainly personally been seduced by it, but I would suggest just pausing if pricing is going to be your determining factor, and considering some of the other options in this report.
QuickBooks does have a lot of integration, but nothing like Xero and usually several months behind where Xero is.
The bank rules are very good – powerful and flexible. I’m told that the app is excellent, and that the journey tracker feature is particularly good.
VAT is broadly done well, although I have noticed as few errors, particularly with the flat rate scheme, which unless you were an accountant you would be unlikely to pick up, meaning that it potentially does give a false sense of security.
Reporting is very powerful, possibly the most powerful of all the online systems here (I did say this system was the sort of system that an accountant might build), and for that it should be applauded.
Broadly speaking though, if you are considering whether to chose between Xero vs QuickBooks, aside from the price, I would say I would think Xero could do everything that QuickBooks can, and more (particulary integrations), with less of a headache, in less time with a greater chance of getting it right.
That said, and I absolutely mean this, if you know and are comfortable with QuickBooks, and you like it, there is no good reason to move, unless QuickBooks no longer does what you need it to.
FreeAgent
The last of the systems I will look at and what a gem.
SPOILER ALERT – whilst this is a premium product, and the price tag is not cheap, at the end of this section I will share with you a totally legitimate (actively encouraged, truth be told) way to get FreeAgent for free.
FreeAgent, or so the legend has it, was created by an ex-RAF-pilot-turned-IT-contractor-guy who was, together with a couple of his contractor buddies, incensed by the torture that was the preparation of their accounts using existing accounting software. At the time, all software was really accountanty and hard to use, and in no way designed for contractors.
Fueled by rage and coffee the team set about creating some accounting software that wasn’t completely awful and basically just kept going until we get to today’s gloriously user-friendly system.
Today FreeAgent is without a doubt the easiest to use accounting software on the market, that I am aware of. It is entirely UK based so all of its native code is designed with UK tax laws in mind. The support team are really really good, and whilst the software is quite intuitive to use, they also have quite a few helpful how-to articles which come in really handy.
Where FreeAgent stands out is in part in what it leaves out. The system is flexible enough to deal with most businesses, but deliberately leaves out the significant complexity that other systems have (Xero) for scenarios that are quite rare. So whilst the system remains relatively uncluttered for most users you will not see a drop in functionality.
On the other hand, whilst FreeAgent leaves some things out, some of the things that are unique to it are mind-blowingly sensible. Quite why the other software providers are not offering it is a mystery.
So where FreeAgent comes into its own is on the day to day functions that you would see as being a small business owner. Out of pocket expenses can be added in easily and you have the option of normal expenses, or mileage, with an automatic calculation of the appropriate tax free rate you can claim (45p per mile up to 10,000 miles, 25p thereafter, calculated 6th April to 5th April the following year – complex for a human to keep track of, but simple for a system).
The system estimates your corporation tax throughout and then tells you what you can take in dividends, so you should never be in a position of having a surprise “illegal” dividend because you forgot about corporation tax.
It tracks your dividends in the year, and if you set it up correctly will even prepare and file simple personal tax returns for you based on the data (so it pulls the dividends you’ve paid into the tax return automatically – pretty neat!)
You can run payroll through it and its quite good, but still not as good as professional stand alone payroll system, however for most people that is not necessary.
It works brilliantly with IR35 contracts so if you find yourself being “inside” IR35, FreeAgent is the system for you, no questions!
It will even, when you pay yourself (if you ask it to by using their smart user payments function) allocate payments to expenses, salary or dividends. As they put it:
On any given day, there will be a certain amount of salary and expenses you ‘owe yourself’, based on your payslips and the out-of-pocket expenses you’ve incurred up to that date.
Instead of categorising a payment to yourself as specifically salary, expenses or dividend, FreeAgent works out how much salary and expenses you owe yourself and deducts those from the payment. It then calls the rest a dividend (producing a dividend voucher you can download under Accounting > Reports > Dividend Vouchers). Obviously if you only paid yourself enough to cover salary and expenses, no dividend would be declared.
That means you don’t have to worry about having to keep track of the salary and expense balances, and just pay yourself a sensible amount.
Again, a nice touch – sensible and simple.
The APIs for FreeAgent are a bit more select than Xero but you should be able to find a solution to what you want to do with the reduced set of apps. For instance it integrates with Stripe and GoCardless, Shopify and a host of others including Zapier, opening up the world somewhat. It’s good, but not at the same scale as Xero.
One integration that may be of particular interest (and one wonders why there is not a native function like this is Fabio (FreeAgent Bulk Input & Output) which is good if you are migrating over from another system or trying to get you last year in order.
The app is also very good and reflects what you can do in the web version of FreeAgent. VAT is also really hassle free but perhaps not a flexible as Xero. That said, again some really nice touches here, such as the automatic calculation of the 6 month reclaim of VAT on registration which in all other systems needs to be calculated manually, and some clever work around the flat rate scheme, including getting the 1% discount in the first year correct – well done guys!!
If you are a small business, contractor or freelancer, without complex API integrations FreeAgent would be my number one recommendation.
It is not as good at complex or bulk in the way that Xero is, but it was not designed with that in mind.
The pricing of FreeAgent “off the shelf” is quite expensive at £29 plus VAT. The often offer discounts for the first 6 months, and if bought through the accountant, can be up to 50% off.
That said, there is no reason you should have to pay for it at all.
In 2018 the company was purchased by Natwest, who surprisingly for a large corporate, did not trash the company. Instead they seem to have supported it in a very, err, supportive way. One of the ways they have done this is to provide FreeAgent for FREEEE to all Natwsest/RBS business customers.
Now I have grilled Team-FreeAgent, and Team Natwest to within an inch of their lives over this suspecting a trap – get you in, get you hooked then push up the prices – the accountancy equivalent of crystal meth, and this really does not appear to be their strategy.
So much so that Natwest recently opened their own challenger bank – Mettle, which will be free from both bank fees and also offer FreeAgent for free, and so far they have been true to their word.
If you want to take advantage of this frankly cracking deal head over to Mettle (https://www.mettle.co.uk/features/get-freeagent-for-free/ which apparently only takes around 30 minutes to actually open, not just apply), or to Natwest (https://www.business.natwest.com/business/business-services/freeagent.html)
