Barclaycard are piloting allowing businesses using the their merchant services to raise invoices and collect payments using an “e-invoicing” service provided by KashFlow.

This posting on TechCrunch, prompted the above tweet from Duane Jackson, which Dennis Howlett picked up on immediately and wrote about here.

My initial reaction to reading the TechCrunch article was that this seemed like a significant development but, here’s my problem, the more I think about it the less important it seems to me. It may be a big deal for the two companies involved (great exposure for KashFlow particularly) but I can’t see where the importance to business owners might be.

I am running a small business and find the idea of printing and posting paper invoices plain ridiculous in 2010, so I use accounting software that makes it easy for me to create PDF invoices and email them to customers. I want to make it as easy as possible for my customer to pay me, and improve my cashflow, so I include a link in my PDF invoices which directs to my PayPal account, which can accept all major credit and debit cards. If I was a Barclaycard merchant, I assume that I could just as easy link to that account on my invoices.

If I didn’t have my accounting system already setup, I might well decide to use KashFlow, and in that case why would I be interested in a cut-down, badged version of that software provided by Barclaycard?

Maybe another scenario is that I have an accounting system that I am happy with but I can’t produce PDF invoices and collect payment electronically. Am I really likely to keep that accounting system and also run a parallel invoicing system (and presumably sales ledger) in a completely separate service and have all the hassle of keeping the two in sync? No, of course not. I will either struggle on without the benefits of “e-invoicing” or, perhaps more likely, decide that it’s time to change my accounting system. In which case, again, I have no interest in what Barclaycard are offering.

My conclusion is that this is another example of one of the banks trying to use an alternative means to market their financial services by cloaking them in some pseudo “added-value” solution involving software. Barclays have form on this, with their Clearly Bookkeeping promotion some years back.

I can’t see any downside for Duane Jackson, unless they are spending a lot on the “badging” exercise for Barclaycard and, indeed, it is already providing his company with great publicity.

Unfortunately, I can’t see much upside for the small business community. That’s why I am thinking this is no big deal.

Update

Duane Jackson responded to my final comment on this posting, via Twitter, as follows – enough (not) said:

I have just been reading this interview with Sage MD Paul Walker on the City AM website and thought I would share a few facts that jumped out at me.

• Sage is valued at £3.4bn and sells accounting software and services to 6.1m small and medium-sized businesses worldwide
• It has bought over 110 rivals since it was founded in 1981
• 70% of revenue comes from support and maintenance services
• Online software sales currently account for two to three per cent of revenue
• The pay of one in four working people in the UK is processed using Sage software

Clearly the subject of online (cloud) services had to come up in the interview and Mr Walker’s response is quoted as being:

“This will suit younger people who start businesses and who are used to working this way. But a lot of other businesses like the security of knowing their accounts and sales information is stored on their desktops.”

Apparently, he also expects revenue from online products to still account for less that half of the group’s revenue in 5 years’ time.

So, what do I think?

• Either Sage are dismissive of the threat to their core business from online accounting services, or Mr Walker is being careful to appear so – while the company buys itself time to re-engineer its offerings
• For a business to make almost three quarters of its money from supporting and fixing its own products seems immoral.
• For most small to medium sized businesses nothing is more mission critical than making sure its employees are paid accurately and on time.  By producing the payslips for one in four UK employees, Sage has ensured that a massive chunk of the market will think twice, or three times before switching to a competitor.

Does the interview leave me with the feeling that Sage is an agile, innovative force?  No.  Does it make me think that Paul Walker is taking his bow before the difficult times ahead?  Maybe.

What I do strongly suspect though, is that customer loyalty will be tested severely as small business owners start to look at the new online alternatives and wonder why they are paying Sage “between £500 and £1,200 a year” for help with the software they have already paid good money to purchase.

I have just spent 10 minutes writing a comment to this posting over on Accounting Web, then thought that it would be better to set out my thoughts here.

There is a fundamental misunderstanding in the Accounting Web discussion, when contributors state (rightly to some extent) that transactions cannot be keyed into the online accounting services, like Xero, Kashflow and Free Agent as quickly as in desktop software, like Sage and QuickBooks.  The problem is speed, many say.

If your practice is providing what I would term “binge bookkeeping” services, meaning processing client records in batches, perhaps monthly or quarterly, then there is little benefit from using online accounting systems for 3 reasons:

1. the client is clearly not interested in maintaining accurate, up to date accounting records, so there is no need for real-time reporting
2. because the client does not need real-time information, there is less downside in sending backup files to the accountant and back – indeed perhaps the data file is permanently with the accountant, with the client only having financial information provided in the form of reports produced by the accountant, and
3. data in batches can be entered more quickly using the interface of desktop software compared with web-based software (with the exception of live bank feeds and bank statement upload files)

However, if you wish to provide a management accounting service, in collaboration with your clients, then online is the only way to go.  The client would typically enter most of the transactions themselves, in very small numbers but very frequently – i.e. daily.  No speed problems here then.

The accountant’s role is to monitor, review, correct and complete the records – then use the real-time numbers to help the client manage and grow their business.  Doing the “clever bits”, like calculating and posting depreciation or making the stock adjustments at the month end, is high value but low transaction volume work.  Again, speed is not therefore an issue.

So my argument is that web-based accounting systems are modern tools to enable delivery of modern services. Accountants can stick to traditional desktop tools if all they want to deliver is a traditional service.  I know which horse I would rather have my money on in that particular distance race.

Yesterday we learned that IRIS has invested in SaaS accountancy software supplier FreeAgent, the financial details are undisclosed.  This news was something of a surprise to me and, since the benefits to FreeAgent seem very clear, got me to thinking what’s in this for IRIS?

It seems obvious that the arrival at IRIS of Phil Robinson, ex Salesforce.com, heralded a renewed interest in SaaS (Software as a Service) or Cloud applications.  So, the link with a SaaS vendor could be expected – and there are likely more to come.  However, what is IRIS specifically trying to achieve here?

The press release states that IRIS will:

“.. gain exclusive rights to collaborate on and resell FreeAgent Central developed products and services to UK accountancy firms.”

And Phil Robinson is quoted as explaining that the “strategic partnership” has been formed to:

“develop and deliver innovative new SaaS solutions for the UK accountancy sector.”

Use of the word “collaborate” in the first quote above is most significant in my opinion.  I think that what we are now going to see is a “forking” of the FreeAgent code, with a new product being created just for UK accountancy practices.  IRIS are effectively purchasing a copy of FreeAgent to develop for their own purposes without having to acquire FreeAgent completely.

This is a smart move and, I think, makes it clear that IRIS have no interest in having their own SaaS accounting product for the general market.  The UK online accounting software market already has significant players, with Xero and Kashflow being two established “big guns” amongst a host of others.

IRIS currently counts 14,000 accountancy practices as their customers (their figure).  However, when one looks at how their accountancy practice software fits into the overall workflow for annual accounts production, a core task for which IRIS provides an integrated solution, there is a “gap” of probably 75% where manual work is required, before IRIS kicks-in to help.

The manual processes I refer to include the accountant getting hold of the client’s accounting data, extracting that data, processing it, reviewing it and producing working papers to evidence the checks undertaken.  Only once all of this heavy lifting has been done, can the numbers be entered into IRIS, for IRIS to then automate much of the final stages of the job, through tax computations to filing with the authorities.

But, if the accountant can leave the data where it is (in the client’s own accounting system) and work with it live, before squirting it into IRIS automatically, then that’s a game changer.

This is where the deal with FreeAgent is expected to pay-off, in my view.  IRIS are now looking to provide solutions to help accountants with the manual processes in the 75% gap in blue above – and delivering these on the back of a SaaS accounting product is the only way to do this.  It’s the “One Ledger” approach I wrote about previously, an approach that Xero are, it seems, well down the track on already.  To play catch-up IRIS had no option but to “buy-in” a Saas accounting application.

So, I applaud Phil Robinson’s vision and wish IRIS every success with this.  Change is always good and this is a potentially a major shift in the dynamics of UK accountancy practice.

Then again, I may be reading entirely too much into this.