SaaS accounting software slugfest: Xero vs QuickbookOnline

• A market that is expected to record 16.4% CAGR to 2019
• A look at 2 players: Main features, pricing and drawbacks

ACCORDING to recent research by technology consulting firm IDC, the market for payroll accounting will grow at a CAGR (compound annual growth rate) of 4.9% to reach US$4.04 billion by 2019.
 
This will primarily be driven by the Software-as-a-Service (SaaS) market, which will record a CAGR of 16.4% versus the 0.4% CAGR for the on-premises market. The on-premises market is essentially bleeding.
 
Most of the SaaS demand comes from small and medium businesses as they are attracted to the low entry fee of cloud computing, which allows vendors to bundle the cost of hardware and software and scale it to out to businesses online.
 
Large businesses have the scale to support on-premises software which requires large upfront investments, and for the time being, they have chosen to support their existing systems instead of taking the risk of business disruption.
 
This rapid growth highlights the game-changing impact of SaaS accounting. Payroll is a function of accounting, which essentially moves funds between bank accounts periodically.
 
The current industry practice of leading SaaS accounting software vendors would be to combine payroll services with inventory, budgeting, invoicing, time tracking and reporting functions. They provide tiered pricing which allows you to choose the bundle of accounting services required.
 
Leading SaaS vendors
 
The SaaS accounting industry is a competitive and packed industry as it has low barriers to entry. Software Advice, a Gartner company, has a long list of 59 software packages for you to consider.
 
For this article, we will just focus on two leading vendors: Xero and QuickbookOnline.
 
Xero started in 2006 and was listed on the New Zealand stock market in June 2007. As we can see, Xero has experienced a high growth rate since its listing.
 

 
QuickbookOnline is developed by Intuit and comes with a desktop and a cloud version. As we can see on the chart below, the online version (QBO) had also seen steady growth.
 

 
As you see, both companies are riding on the rapid growth of SaaS accounting services.
 
We will be looking at some of the features of their products that have attracted scores of companies to them like bees to honey.
 
Feature: Chart of Accounts
 
Both are developed for small business users and they got their basics right.
 
The basics of any accounting system would be the double entry system and all the major accounting functions – from payroll, accounts payable, and accounts receivable to inventory management – are covered.
 
These are presented in a Chart of Accounts as shown below.
 

 

 
Both QuickbookOnline and Xero understand that users of the system may not be trained accountants. This is why they have special access for accountants to look through the accounts to ensure that they conform with traditional accounting standards.
 
It should be noted that both software provides full audit trails automatically.
 
Feature: Reconciliation
 
The next worthwhile feature would be reconciliation of accounts. As mentioned earlier, reconciliation can be a very time-consuming activity but absolutely vital for proper accounting.
 
Both companies allow for full integration with your bank account, PayPal and credit cards.
 

 
As you can see, if the accounts match, you would just have to click ‘ok.’ If not, you can create a new record or transfer the funds away. If you are unsure, you can even leave a comment behind for your accountant.
 
For regular payments, you can also create a rule to reconcile automatically.
 

 
QuickbookOnline allows you to reconcile by each account (checking account in the example above) and when the difference is $0, then it is considered fully reconciled.
 
You can then just click Finish Now.
 
Feature: Invoicing & Billing
 
Invoicing is a repetitive feature that can be streamlined, especially for repeat customers. The same details do not need to be repeated twice and this applies for when you receive a bill from your suppliers.
 
For bills, they might require different levels of approvals and this can be done.
 

 
For Xero, if the customers are not Xero clients, they will get free accounts that allow them to view all the bills that you have sent to them. If they are Xero clients, they save it in their own account and pay from their account. Alternatively, they can choose to batch pay.
 

 
For both, you can actually see the unpaid amount for your clients and the invoice can be automatically sent to their email address.
 
Feature: Reports
 
After all your accounting efforts, it all boils down to your profit and loss statement.
 

 
QuickbookOnline provides a detailed report as seen above that shows the sources of your income and expenses.
 

 
This is Xero’s version of the profit and loss report which allows you to switch for different periods. It can also be exported and saved.
 
Similarities and pricing
 
If you look at the four main features, you will realise that both Xero and QuickbookOnline are quite similar in terms of functionality.
 
The only difference is in terms of style, and this is due to the intense competition between the two of them. When Xero burst into the US scene in 2012, it took away substantial business from QuickbookOnline, forcing the latter to play catch-up.
 
It should be noted that pricing always change over time. This pricing is extracted from both companies as of January 2016.
 

 
The prices of the products are listed above for easy comparison, and they are all priced in USD. As you can see, QuickbookOnline had made it a point to price itself below Xero due to the intense competition.
 
QuickbookOnline has a Singapore version that is IRAS-compliant and eligible for the USS$200 Productivity and Innovation Credit Scheme.
 
For Xero, the pricing for each tiered package is straightforward as seen above. QuickbookOnline has a lower price for a period of 6-12 months before the normal price is applied.
 
Outage drawbacks
 
While it is much cheaper to use cloud services, one of the major drawbacks is that you are entirely dependent on the service provider to keep its service online.
 
For example, Intuit QuickbookOnline was not available for six hours in February 2009 due to ‘network issues,’ for 12 hours in June 2010 and 36 hours in July 2010 due to power failure.
 
Xero had their major outage in June 2009 ‘for hours’ when its host Rackspace was hit by a power failure at its Dallas centre.
 
These are just the major outages that last for hours that are widely reported and noted. There are many smaller outages that are ignored by the media.
 
Just as with Singapore’s MRT trains, you will just have to accept imperfections in an otherwise perfect system.

So while SaaS prides itself as being the service that is on-demand, and that you pay for what you consume, sometimes the problem is that you may not be able to get access when you need it the most.
 
Once there is a power outage, it will affect a wide cross-section of companies. Not only is availability an issue, your data might be corrupted, and so it is always a good idea to back up your data periodically.
 
Conclusion
 
Nothing is perfect. The good thing is that these companies have learned their lessons, and there have been no major disruption in the past five years.
 
Improvements have been made, such as mobile access via your phones and iPads for you, your accountants, investors and anyone who matters. These are incremental improvements, so they are not written about in detail.
 
The main benefit of SaaS accounting software is that their low monthly cost and no upfront investments have allowed small businesses to gain access to high quality accounting services.
 
There are entire accounting firms in Singapore that package their services around Xero (e.g J-Accounting) and QuickbookOnline (e.g. Chiew-Accounting) for a comprehensive accounting package.
 
Hence it is clear that SaaS accounting is slowly but steadily gaining acceptance.
 
While there might be a new notable entrant or an existing player that might improve their services to gain notice, for now Xero and QuickbookOnline are the two leading vendors.

For businesses that wish to engage their customers better, they can choose a low-cost helpdesk SaaS such as Zendesk and Freshdesk, or CRM (customer relationship management) software such as Insightly and Zoho CRM.
 
Beyond the individual SaaS offering, businesses should also have a comprehensive digital strategy with strong SEO (search engine optimisation) features to guide their way to a successful digital presence.
 
Ong Kai Kiat is a professional freelance writer who enjoys the process of discovering and collating new trends and insights for an article. He is reachable at [email protected].
 
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