Chances are that you’ve heard of the term ‘Open Banking’, and you might have even begun to use this relatively new model of business-solution banking across your company, taking advantage of the benefits that it offers. But there’s an even newer kid on the block when it comes to business finances – Open Accounting.

Similar to Open Banking, where financial information is shared with providers to create a quicker and easier way to access accounts and credit, Open Accounting or bookkeeping allows lenders to see a business’s full accounts. Rather than just being able to view transaction information, Open Accounting gives a full picture of a company’s financial position.

This new solution to business accounting holds greater potential for companies looking for ways to make easy work of their finances. We’ll explore how exactly open accounting works and the benefits for your company, as well as tackle the misconceptions surrounding the risk factors of utilising this new technology.

What is Open Accounting?

In Open Accounting, a business’s full accounts can be viewed by lenders and providers in real-time, making it easier to understand the context behind a company’s finances. By being able to see specific information such as profit-and-loss account details, balance sheets, invoices and purchase orders, these providers, therefore, gain greater and more detailed insight. This then allows them to make decisions on lending with greater accuracy and tailor solutions to meet their clients’ needs.

Because the information is available at the touch of a button and reflects real-time data, lending decisions can be made quicker and more easily. Account details are shared across providers and trusted third parties but only with a business’s consent.

How does Open Accounting work?

Historically, banks, lenders and other providers often had to use dated information to reach their lending decisions due to the lack of access to recent accounting information. Now that most small and medium-sized businesses submit their company accounts to Companies House digitally, accurate and up-to-date information is easily available.

With a business’s permission, Application Programming Interfaces (APIs) can be used to gather accounting data, with third parties required to request access before doing so. This detailed insight means that businesses can receive better products, services and offers, with lenders also benefitting from Open Accounting technology and open source bookkeeping platforms.

How can Open Accounting benefit you?

According to government data, there are 5.7 million small-to-medium enterprises in the UK. They all assist in driving growth, providing jobs and harnessing innovation. If you’re the owner of an SME, you could unlock even more potential in your business by participating in Open Accounting.

Alongside the government’s Making Tax Digital policy, which strives to create a more efficient way of overseeing tax administration for both businesses and HMRC, the introduction of Open Banking and Open Accounting could, combined, revolutionise the way in which your company submits accounts and carries out financial business.

With many potential benefits to the way you run your company, it’s not difficult to see why many organisations are already happily embracing this new technology. Here are a few of the advantages:

  • Real-time information – Instead of basing lending decisions on outdated financial information, providers can use up-to-date, real-time account details when offering credit to your business. Newer businesses can be assessed on their current financial status, rather than just through simple bank transactions or previous, often limited, accounts, giving a bigger overall picture and insight to the lender.
  • Streamlined process – With all the information in one place, providers and businesses can take advantage of a quicker and simpler process when applying for credit, loans or other financial support. It means less submitting of information for you and your businesses as well as a faster decision.
  • Up-to-date cash flow – With cash flow moving quickly in and out of many businesses, it can be difficult for third-party providers to assess your company’s true financial situation. Open Accounting shares details of invoicing, suppliers and payments due, giving a true insight into your business’s financial health.
  • Increased competition and better borrowing terms – Lenders are able to assess risk more accurately, leading to better terms and products for your business. Plus, with multiple Fintech companies also being able to take advantage of Open Bookkeeping technology, there is a wider range of providers from which you can choose.
  • Transparency – This is a key factor, not just for your business and financial records but also across the sharing of data. You’re in control of who accesses and uses your accounting information, meaning greater accuracy and privacy when it’s needed.

Pulse can only do what it does with Open Accounting and Open Banking. Once we have access to this data, we are able to provide game-changing insights that make all the difference to businesses like yours.

What are the risks of Open Accounting?

Naturally, you might be concerned about data protection and privacy when it comes to Open Bookkeeping. With so much detailed information readily available, this can be a legitimate worry. However, no provider can access your data without your business’s consent – and this can be withdrawn at any given time if you feel it necessary.

The Data Protection Act also governs how your information is handled by other organisations and gives you the right to find out about how your data is being used and prevent it from being processed, should you choose.

In some ways, the crop of new technology allows for a more secure environment when dealing with business finances, particularly with the high-level authentication measures used by the programming methods. You’ll still be asked to prove who you and your business are before any transactions or lending can go ahead, which should help to alleviate any worries relating to fraud or security.

As with any online or financial transactions, it’s wise to be wary of any suspicious digital activity and report any red flags to the relevant body.

How does Open-Source Bookkeeping software fit in?

With a greater number of businesses choosing Open Accounting to make their financial processes easier and more streamlined, many are also choosing to tailor their whole accounting package to their specific needs with Open-Source Bookkeeping.

What is Open-Source Accounting?

Essentially, Open-Source Accounting means that the source code of the accounting software is publicly available and accessible to anyone. Because Open-Source Bookkeeping can be fully tailored and adapted to your business’s requirements, you can create the best system for you, saving time, money and outsourcing requirements.

There are many systems from which to choose, with most allowing free or cheap source-code download options, making it easy to add to your future-focused business solutions and providing increased efficiency and autonomy.

The main drawback of Open-Source Accounting for small businesses is the need for a certain level of software and technology expertise. However, many systems are user-friendly, and there’s always the option of drafting in a third-party expert for the initial setup and tech support.

If you have the means and you wish to embrace an all-round tailored accounting system for your business, Open-Source Bookkeeping could be ideal for you.

Find the perfect solution for your business with pen accounting

There’s no doubt that Open Accounting will change the way in which many businesses carry out their processes and access financial credit and support across the UK. If you think that your small or medium-sized company could benefit from Open Accounting, or from any other business or technology-focused solutions, take a look at our blog hub for expert guides, resources, and access to small business financial intelligence.

Alternatively, feel free to get in touch with the team at Pulse who will be happy to offer help and advice.