Among the challenges accountants face is accounting for purchases employees make to get their work done. While the expense report process attempts to address this, it often falls short in providing accurate accounting because it relies on non-accountants entering financial data. The result is typically a time-consuming process for accountants, who must review, reconcile and correct the accounting entries submitted by employees.
The emergence of virtual cards, especially when combined with AI-powered fintech apps, offers accountants a new approach to solving this long-standing challenge.
What is a virtual card?
As many may already know, virtual cards are a type of company-paid credit card that functions like a traditional, physical card with one key difference: There’s no physical card involved. This allows for the creation of an almost unlimited number of unique card numbers, highlighting the brilliance behind virtual cards: intended use.
The concept of “intended use” recognizes that employees have specific scenarios in mind when using a virtual card. This could be to cover the expenses involved in an upcoming business trip, purchasing construction materials for a job or covering necessary permits or fees for cell tower repairs.
Fintech apps can issue virtual cards to employees based on intended use. These apps leverage intended use to determine the appropriate accounting for purchases made with each virtual card. Utilizing virtual cards through a fintech app, the employee experience becomes streamlined, making the process user-friendly. Employees simply select an intended use from a list provided by their organization and enter the desired spending limit. Unlike expense reports, they do not need to enter accounting codes or other financial details. The fintech app automatically determines the correct accounting in the background, eliminating the need for employees to manage complex accounting information.
AI can help improve accuracy
While intended use allows fintech apps to predict the correct accounting, some intended uses allow for an amount of accuracy that isn’t adequate.
An example is the business trip intended use discussed above. The accounting accuracy depends on the chart of accounts for travel-related expenses. If the COA has only one account for travel, then the trip’s intended use will have the necessary accuracy. If there are expenses for subaccounts such as airfare, lodging, ground transportation and so forth, the trip needs to involve more detail to have the necessary accuracy. This is where AI can help.
Fintech apps can use AI to analyze purchases made with a given virtual card and its intended use to arrive at the precise accounting for each purchase. The AI involved analyzes large sets of purchases by employees, looking for patterns in accounting. AI is able to consider a wide range of parameters found in these purchases and consider a vast array of possibilities to arrive at the correct accounting. AI is especially impressive for sophisticated, multidimensional COAs because of its ability to analyze complex patterns.
AI ensures accurate accounting happens automatically, thus avoiding the need for accountants to review the accounting prior to booking purchases into the general ledger. Some fintech apps can automatically make these bookings by posting them to the GL, delivering accountants a completely automated process.
Reconciling credit card statements
In addition, some fintech apps, when combined with virtual card use, can automatically reconcile credit card statements, saving dozens of hours of month-end accounting work. These apps compare the transactions on a statement with purchases made using virtual cards and, because the accounting for these transactions is already confirmed, mark them as reconciled.
They also flag transactions paid with a physical card, instead of a virtual card; how these are handled depends on the fintech app. Some apps integrate with expense management services to verify if accounting data is available for these transactions. If so, the app uses this data and marks the transactions as reconciled.
For transactions without expense management data, AI-enabled apps can automatically predict the appropriate accounting. These apps then give accountants the choice to either use this predicted accounting as final or treat it as an accrual until the transactions appear in the expense management service. In both cases, the apps mark the transactions as reconciled, resulting in a fully reconciled credit card statement, ready for period close.
Streamlining the process
AI-powered fintech apps create a streamlined purchasing and accounting process for both employees and accountants. Before purchasing a good or service, employees simply request a virtual card and indicate its intended use, eliminating the need to input accounting data manually.
These apps can save accountants hours of work by automating the correct accounting for employee purchases and reconciling monthly statements from card issuers, ensuring a smoother, more accurate and efficient process.
Credit: Source link
