Cloud accounting software explained

What “cloud” accounting means

Traditional accounting software was installed on one computer, with files backed up manually. Cloud accounting software is hosted by the provider and accessed through a web browser or app. Your data is stored on the provider’s servers, updates happen automatically and you can log in from any device.

Benefits for small businesses

• Access from anywhere, including mobile apps for invoicing and receipts.
• Automatic bank feeds and updates.
• Real-time collaboration with your accountant or bookkeeper.
• No manual backups or software installations.
• Integrations with payments, e-commerce and CRM tools.
• Easier compliance with digital tax requirements such as UK Making Tax Digital.

Possible downsides

• Ongoing subscription rather than a one-off licence.
• Requires an internet connection for most features.
• Your data lives with a third party, so check security and export options.
• Price changes are outside your control.

Leading cloud accounting products

Xero Check current price, QuickBooks Online Check current price, FreeAgent Check current price, FreshBooks Check current price, Wave Check current price and Sage Accounting Check current price are all cloud-based. See how they compare by country in our comparison and head-to-heads: Xero vs QuickBooks and FreeAgent vs Xero.

Security and access control

Use strong, unique passwords and enable two-factor authentication for every user. Give team members only the access they need — for example, a salesperson may need to raise invoices but not see payroll. Review users periodically and remove anyone who no longer needs access. Reputable cloud providers publish security information, which is worth reading before you commit.

Migrating from spreadsheets

Switching from spreadsheets is easiest at the start of a financial year or quarter. Gather opening balances for bank accounts, outstanding customer invoices and supplier bills, and fixed assets. Import contacts and products using the software’s CSV templates. Run the old and new systems in parallel for a month, reconcile, and then retire the spreadsheet. Many providers offer free migration guides.

Cloud vs desktop accounting software

Desktop accounting software is installed on one computer and the data file usually lives there, which can suit businesses that want to keep everything on their own machines. It typically needs manual backups and updates, and sharing with an accountant may mean sending files. Cloud software is accessed through a browser or app, updates automatically and allows several people to work at once. Many established desktop products now offer cloud versions, and some providers have shifted new customers towards cloud plans.

Mobile apps: accounting on the go

Cloud accounting packages generally include mobile apps for the tasks you need away from a desk: raising and sending invoices, snapping receipts, checking who owes you money and reconciling a few bank transactions. For trades and field-based businesses this can save hours of evening admin. Test the mobile app during your trial, as quality varies more than desktop interfaces.

Integrations: the real power of the cloud

Cloud accounting connects to other tools through integrations: payment providers so payments are matched automatically, e-commerce platforms so sales flow in, expense apps for staff spending, and CRM or project tools. Each integration removes manual data entry and the errors that come with it. Before choosing, list the tools you already use and check each one integrates with your shortlisted packages.

Making Tax Digital and the cloud

In the UK, HMRC’s Making Tax Digital program requires VAT-registered businesses to keep digital records and submit VAT returns using compatible software, and it is being extended to income tax for some sole traders and landlords. Cloud accounting products are a common way to comply because they keep records digitally and submit returns directly. Check HMRC’s list of compatible software and the current timetable on GOV.UK.

Security questions to ask

Look for two-factor authentication, encryption, granular user permissions, audit trails and clear data export. Read the provider’s security page and privacy policy, and consider where data is hosted if that matters for your business.

Frequently asked questions