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SaaS Accounting - Essentials You Should Know

Mohammed NaserMohammed Naser

SaaS accounting solutions come in handy for businesses of all types, no matter what their size. What should you know about the topic? Read more.

SaaS accounting solutions come in handy for businesses of all types, no matter what their size or how long they've been in business. With the rise in SaaS and cloud computing adoption, accounting has evolved a lot in recent years. Here's an exploration into some concepts and topics that are important to anyone interested in SaaS for accounting.

How is SaaS Accounting Model Different/Advantageous?

SaaS accounting follows a subscription model compared to the licensing model of traditional software. Think of it as subscribing to a streaming service where you can access and watch the numerous available movies as you please, compared to paying for rental DVDs one-by-one. Furthermore, the traditional model in accounting software involves license fees, implementation, limited customization, and time-consuming support and maintenance protocols.

However, in SaaS accounting, everything is included in the subscription charges, and the provider is responsible for ensuring uninterrupted service to the customers, including timely upgrades and updates. Such a model also removes unexpected expenses for businesses and reduces overall long-term costs. Other advantages of the SaaS model for accounting include:

  • Apps can be used over an internet browser without hardware or software installation
  • Lower technical requirements from the user
  • Accessibility and compatibility over multiple devices and OS
  • Collaboration between team members and management
  • Reduces piracy and security threats

Types of SaaS Accounting

There are two major types of SaaS accounting, depending on when transactions are recorded in the accounts - cash and accrual.

In cash-based accounting, transactions are added or subtracted as payments are made or expenses incurred. This method is often used by small to medium businesses with comparatively low or no inventory. It is simple to maintain and track and doesn't take payable or receivable to account.

Accrual accounting is more widely used across industries and records earnings and expenses as they happen, not when money has been deposited or sent. This is a more fluid yet complex system and is ideal for giving accurate representation in real-time and forecasting future expenses and trends. For most SaaS businesses, the accrual model is more suitable, and Monthly Recurring Revenue (MRR) is a crucial metric to follow, providing similar trends.

Financial Management with Compliance

Compliance with rules and regulations is critical for any business. With SaaS accounting, every company is expected to follow the financial rules and laws and depending on their location and locale of operations. Overall, in order to ensure compliance for SaaS accounting, three metrics are tracked:

  • Bookings: revenue the company expects to earn, often, even before payment completion
  • Billings: amount in invoices sent to customers or money the company is owed.
  • Revenue: recognized revenue for services delivered. Can be MRR or ARR (Annual Recurring Revenue)

VEXXHOST Cloud Services for SaaS

Using traditional software systems for accounting is error-heavy and time-consuming. Automation through SaaS accounting is a highly beneficial tool for businesses of all sizes. Companies get the opportunity to focus on things that they do best while the software service is provided to them for fair prices.

SaaS providers and enterprises often need cloud hosting services to support their operations, and that's where VEXXHOST clouds come in. For many of our clients, our OpenStack-based public and private clouds are the preferred choices because of their highly scalable and secure nature.

Speaking of private clouds, you can now run on a fully agile and customized cloud from VEXXHOST, with no licensing fees and smooth 2-week migration. In fact, we're ready to put our money where our mouth is. We're so confident in being able to save you at least 20% or more on your current cloud infrastructure expenditure that if proven wrong- we'll give you $1,000 credit to our public cloud.

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