Welcome back to our series on add-ons! If you missed the first article, check it out to discover where add-ons have come from and what they are. In this article, we dig deeper into the how – how do add-ons work?
Recall that an add-on is a program used to achieve a task that interacts with the accounting system in some way. This interaction usually comes down to sharing data so that the two systems can stay current with each other.
For example, an inventory program will get the chart of accounts from the accounting program. It will send back journals for profit and loss on the one hand, and balance sheet accounts for inventory, as stock is purchased and sold, on the other hand. The add-on would generally batch an hour/day/week’s inventory changes into the one journal and push it back into the accounting system. Your reports in the accounting system will be correct at a trial balance level, but you’d need to look at the inventory program for more details.
What are the touch points, do they map accounts, do they batch, and how does the synchronisation process work
There are some questions you need to ask for all add-ons – what are the touch points, do they map accounts, do they batch, and how does the synchronisation process work? We will have a closer look at each of these aspects so you can see the forest for the trees and stay away from add-ons that will make your life more complicated rather than easier.
Touch points are the where and the how of communication between the two programs.
In our inventory example above, the touch points were profit and loss and balance sheet accounts. They were communicated via a journal.
In a debtor’s recovery add-on, the touch point would be sales invoices.
Touch points can differ between add-ons, even in the same vertical. What one program does, another may not, simply because different add-on companies made different choices on how they want their own program to run. That means selecting add-ons is serious business!
Your chart of accounts is built for reporting accounting information back to the owners of a business, as well as making day-to-day processing efficient.
An add-on needs to know which accounts are used for what. The accounting system can tell the add-on the type of account, e.g. income, expense, current asset, bank account, etc. However, it can’t usually tell the add-on what your ‘OS TA’ account is supposed to be (yet – look out, AI).
For this reason, there is a common concept of ‘mapping’, where you say
‘OS TA’ in the accounting system = ‘Overseas travel and accommodation’ in the add-on system.
A benefit of mapping is that you can usually assign more than one accounting system account to the same add-on account, which can lead to more summarised data.
The downside to mapping is now mostly in the past: it used to be manual fiddly labour, and getting it wrong used to mean data was out of place and might not be picked up in review.
These days, however, mapping is usually done automatically for you, primarily based on your chart of accounts structure, some type of ‘report code’ system and some AI smarts. Most add-ons will still expose this mapping somewhere so you can check, tweak, and audit it. In other words, it’s now a best-of-both-worlds situation.
Add-ons can generate a lot of accounting activity. As reported at Digital First, at the Accounting Expo this year Kogan CFO David Shafer mentioned they were using Unleashed as their inventory add-on alongside Xero for 10,000 orders a day. That’s 10,000 invoices shifting goods out of inventory into sales in the ledger. How does that get into Xero?
Batching is the answer – data is added to a log, and at the end of a period of time, it gets summarised into a transaction and added into the accounting system. The benefit is that your accounting system doesn’t get smashed with all the data, which is great news. Unfortunately, the disadvantage is not only a loss of detail, but also the fact that you need to reconcile the two when changes happen.
How do I check whether the two systems reconcile?
The question to ask the vendor here is, ‘How do I check whether the two systems reconcile? Which report/s will show me this?’ You are looking for two things in the answer: a) confidence that there IS a way to reconcile the two systems, b) confirmation that the method is something more useful than a generic list of synchronisations/transactions, which would require you to go digging through spreadsheets from both systems with your trusty vlookup.
In the bad old days, synchronisation (sync) was a matter of you, the human, exporting a file from one program and importing it into another.
Now, the computer and this API you’ve heard about (more on that in our next article), will do that for you.
The key questions are: when will it do the sync, and how does it deal with changes in either system?
The sync frequency usually depends on the volume of data being extracted. Smaller amounts of data are usually hourly, whilst larger sets of data are mostly done on an automatic overnight basis.
Some add-ons, for example inventory add-on Cin7, only sync when you tell them to. Keep in mind this isn’t necessarily good or bad – with these programs withholding the sync, you can wait until a transaction is certain enough that it won’t require changes, then shuffle it along.
Changes to a synchronised transaction are the bane of a developer because they are hard to keep track of. Think of it like this: once that transaction leaves the add-on, it goes into the accounting system, where you and your users can do to it whatever you like. If you change the transaction, the add-on can lose track of it. If the add-on then needs to update that transaction, it won’t find it and the two systems will stop reconciling. The integrity of the data can then be called into question, and that’s the end of the world. For us accountants, anyway.
So when you’re evaluating an add-on, keep the concepts of touch points, mapping, batching, and synchronisation in mind. It will help you visualise how the add-on fits into the business’s flow of information, and give you starting points for the scenario in which the two get out of balance and you need to reconcile them. If you use the right add-ons for your business, they can be a great asset for its efficiency. Our next article will delve deeper into how the synchronisation process works via APIs.