Cloud accounting software: what it is and why you need it

Published Monday 30 March 2026

Table of contents

• What is the cloud?
• What is cloud accounting software?
• Limitations of traditional accounting software
• Benefits of cloud accounting software
• What features should I look for in cloud accounting software?
• Why the cloud and accounting software fit so well
• How to switch to cloud accounting
• Make the switch to cloud accounting with Xero
• FAQs on cloud accounting software

Key takeaways

• Connect your business bank accounts to cloud accounting software to enable automated transaction imports, which eliminates hours of manual data entry and reduces the risk of errors while keeping your financial records current.
• Choose cloud accounting software with multi-user access so you can collaborate with team members, accountants, and advisors in real time, ensuring everyone works with the same up-to-date financial information.
• Prioritise cloud accounting solutions that offer real-time financial visibility, allowing you to see your current cash position, outstanding invoices, and upcoming bills at any moment to make faster business decisions.
• Plan for a smooth transition by gathering your financial data, importing opening balances, and running both your old and new systems in parallel for a short period during the switch to cloud accounting.

Table of contents

• What is the cloud?
• What is cloud accounting software?
• Limitations of traditional accounting software
• Benefits of cloud accounting software
• What features should I look for in cloud accounting software?
• Why the cloud and accounting software fit so well
• How to switch to cloud accounting
• Make the switch to cloud accounting with Xero
• FAQs on cloud accounting software

What is the cloud?

The cloud is a way of storing data and software on remote servers accessed through the internet instead of on your own computer. You're already familiar with it if you use internet banking. Every time you check your account online, you're accessing data stored in the cloud.

With cloud-based tools, you can reach your data from anywhere with an internet connection, without relying on a single hard drive.

What is cloud accounting software?

Cloud accounting software is accounting software hosted on remote servers and delivered over the internet, following a software as a service (SaaS) model. Unlike traditional desktop software, there's no need to install or maintain it on your own computer. You can securely access your financial data anytime, from any device, which is why small and medium enterprises (SMEs) represent over 45% of the business accounting software user base.

With cloud accounting, you keep your business books online, including:

• records of income and expenses
• assets and liabilities
• quotes, invoices, and bills

This means you can access and update your finances from anywhere.

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How cloud accounting software works

When you decide to try out cloud accounting, you subscribe to online accounting software and move your books to the cloud.

Access anywhere: From then on, you can access your accounts from any web browser or from an app on your phone.

Automated bank feeds: Connect the software to your business bank account so transactions flow automatically from the bank to your books. This saves you from hours of manual data entry.

Limitations of traditional accounting software

Traditional accounting software has been around for years, but it comes with limitations that can slow your business down:

• Outdated data: The information in the system isn't always current.
• Single-device access: It only works on one computer, and moving data via USB drives is neither secure nor reliable.
• Limited user access: Only one person can log in, meaning key people can't access financial and customer details.
• Manual backups: Keeping backups is costly and complicated, if it's done at all.
• Difficult upgrades: Updating the software is expensive and time-consuming, unlike cloud accounting which updates automatically.

Benefits of cloud accounting software

Cloud accounting software saves time, helps you collaborate, and protects your data. By centralising your financial information in one secure place, you spend less time on daily bookkeeping and more time growing your business.

Here are the key benefits:

• Automated bank feeds: Sales, income, and purchase data flows straight from your bank to your books, so you don't spend hours on manual entry.
• Real-time visibility: See your current financial position at any time.
• Multi-user access: Collaborate online with your team and advisors easily. Research shows that integrating systems significantly motivates businesses to adopt cloud accounting.
• Automatic updates and backups: There's nothing to install or update, and your data is backed up automatically.
• Custom dashboards: Set up views showing who owes you money, what bills are due, and how your cash flow is looking.

Real-time financial visibility

Real-time financial visibility means you can see your current cash position, outstanding invoices, and upcoming bills at any moment. Unlike traditional software where data may be days or weeks old, cloud accounting updates automatically as transactions occur.

This helps you:

• Track cash flow: Know exactly how much money is coming in and going out.
• Spot issues early: Identify overdue invoices or unexpected expenses before they become problems.
• Make faster decisions: Access current data when opportunities or challenges arise.

Automated data entry and bank feeds

Automated bank feeds connect your accounting software directly to your bank accounts, importing transactions automatically. This eliminates hours of manual data entry and reduces the risk of errors. Some optical character recognition (OCR) tools eliminate 83% of data entry and significantly lower invoice processing costs.

Key automation benefits:

• Automatic imports: Bank transactions flow into your books daily without manual entry.
• Smart matching: The software learns to categorise recurring transactions.
• Reconcile faster: Match imported transactions to invoices and bills in clicks, not hours.
• Fewer errors: Remove the risk of typos and missed entries.

Enhanced collaboration and multi-user access

Multi-user access lets you invite team members, accountants, and advisors to work in the same system at the same time. Everyone sees the same up-to-date information, so you avoid confusing versions and emailing back and forth.

Collaboration benefits:

• Work with your accountant: Give your accountant direct access to review your books and prepare tax returns.
• Delegate tasks: Assign bookkeeping tasks to team members with appropriate permissions.
• Control access levels: Decide who can view, edit, or approve transactions.
• Real-time updates: Changes made by one user appear instantly for everyone.

Automatic updates and backups

Automatic updates mean your cloud accounting software stays current without any effort from you. Your provider automatically applies new features, security patches, and compliance updates.

What this means for your business:

• Always current: Access the latest features and improvements without manual installations.
• Security patches: The software automatically fixes vulnerabilities, keeping your data protected.
• Compliance updates: Your provider applies tax rate changes and regulatory updates for you.
• Automatic backups: The software backs up your data regularly to secure servers, so you never lose your records.

What features should I look for in cloud accounting software?

When evaluating cloud accounting software, focus on features that save time, improve accuracy, and grow with your business. The right solution should handle your daily bookkeeping while giving you visibility into your financial health.

Essential features to look for:

• Automated bank feeds: Import transactions directly from your bank accounts.
• Invoicing: Create and send professional invoices, and track payments.
• Expense tracking: Record and categorise business expenses easily.
• Real-time reporting: Access profit and loss, balance sheet, and cash flow reports anytime.
• Multi-user access: Invite team members and advisors with controlled permissions.
• Mobile app: Manage your accounts from your phone or tablet.
• App integrations: Connect with payment processors, e-commerce platforms, and other business tools.
• Automatic backups: Ensure your data is protected and recoverable.
• Security features: Look for encryption, multi-factor authentication, and secure data centres.
• Scalability: Choose software that can grow with your business needs.

The use of mobile accounting apps has grown by over 45% in active users over the last two years, reflecting this need to manage finances on the go.

Why the cloud and accounting software fit so well

Cloud-based software works seamlessly with accounting because it removes the barriers of traditional desktop tools. Here's why:

• Device flexibility: Access your accounts from any device with an internet connection.
• App integrations: Connect with third-party business apps to streamline operations.
• No installation required: There's no software to install or maintain on your computer.
• Subscription pricing: Pay monthly instead of large upfront costs.

Cloud security you can trust

Many small business owners wonder about the security of storing data in the cloud. While some potential adopters worry about data breaches, cloud accounting is typically more secure than traditional on-site solutions because reputable providers use advanced technology to protect your financial information.

Here's how cloud security protects your business:

• Bank-level encryption: Cloud providers use the same security measures as online banking.
• Disaster recovery: Cloud providers store your data off-site, so a fire or natural disaster won't cause downtime.
• Access controls: You decide who can view your data and what level of access they have.
• No risky file sharing: Avoid emailing files or sending USB sticks with sensitive information.

If you already use online banking, you're ready to trust cloud accounting.

Work smarter with accessible data in the cloud

Cloud accounting gives you flexibility to run your business from work, home, or on the go. You always have an up-to-date picture of how your business is doing, no matter where you are.

Key advantages of accessible data:

• Real-time visibility: Access up-to-the-minute financial data from any device with an internet connection.
• Better decisions: Make informed choices whether you're in the office, at home, or travelling.
• Simplified teamwork: Everyone sees the same information at once.
• Automatic updates: Your provider keeps the software current and secure, with no manual updates or backups required.

How to switch to cloud accounting

Switching to cloud accounting is straightforward. Most small businesses complete the transition within a few weeks. Follow these steps to move smoothly from your current system.

1. Choose your cloud accounting provider. Compare features, pricing, and support options. Look for software that fits your business size and industry.
2. Sign up and select your plan. Most providers offer tiered pricing based on features and transaction volume. Start with a plan that meets your current needs.
3. Gather your financial data. Collect your chart of accounts, opening balances, and recent transaction history from your current system.
4. Import or enter your opening balances. Transfer your account balances to establish your starting point. Many providers offer import tools or support to help you migrate.
5. Connect your bank accounts. Link your business bank accounts to enable automatic transaction imports.
6. Set up your chart of accounts and tax settings. Configure your account categories and tax rates to match your business requirements.
7. Invite your accountant or team members. Add users with appropriate access levels so everyone can start working in the new system.
8. Start processing transactions. Begin recording new transactions in your cloud software. Run both systems in parallel for a short period if needed.

Make the switch to cloud accounting with Xero

Most cloud providers, including Xero, offer step-by-step guides or migration support to help you move your data across safely. Once set up, you can connect your bank accounts, invite your advisor, and begin managing your finances in real time, wherever you are.

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FAQs on cloud accounting software

Here are some common questions you may have about cloud accounting software for your small business:

Is cloud accounting software secure?

Yes, cloud accounting software is secure. Cloud accounting services use encryption, secure servers, and regular backups, similar to online banking. This protects your data even if you lose or damage a device, and you control who can access your information through login permissions.

How much does cloud accounting software cost?

Cloud accounting software typically costs between US$15 and US$80 per month for small businesses, depending on features and transaction volume. For example, some providers offer plans like FreshBooks Lite (priced at US$15) for a limited number of clients. Most providers offer tiered plans, so you can start with a basic plan and upgrade as your business grows. Time savings and reduced accounting fees usually offset the cost.

Can I use cloud accounting software offline?

You need an internet connection to access your data and process transactions in cloud accounting software. However, most providers offer mobile apps that let you capture receipts and draft invoices offline, then sync when you're back online. For reliable access, ensure you have a stable internet connection at your primary work location.

Will cloud accounting software integrate with my other business tools?

Yes, most cloud accounting software integrates with hundreds of business apps. Common integrations include payment processors, e-commerce platforms, point-of-sale systems, CRM tools, and payroll software. Check your provider's app marketplace to confirm compatibility with the tools you already use.

How long does it take to set up cloud accounting software?

Basic setup takes a few hours, including connecting your bank accounts and configuring your chart of accounts. Importing historical data and fully transitioning from your old system typically takes two to four weeks. Your provider may offer support to help you migrate faster.