There is a growing trend for modern businesses to engage in “Real-time Accounting” where financial records are updated as transactions occur. As a long time user of real-time accounting methodology, I am a vocal advocate.

Remember cheques? Some of my clients still use them. Now, they seem like such an inefficient way to pay or receive money. The money doesn’t leave your account until the user physically banks the cheque, and then you have to wait until it clears. Only then can you update your “books” and reconcile the payment. This kind of thing is the antithesis of real-time accounting.

Your accounts are no doubt stored in some kind of recording-keeping software like MYOB or Quickbooks. To start going “real-time” make sure that whenever money leaves or enters your main bank account, the amount is raised is your software as quickly as possible. This means that at any given time the software the bank agree. There is no need to reconcile! If money goes in – tell your software. If money goes out – tell your software. Simple.

Here are some tips to make this methodology easier for you :

• Make sure your main “checking” account is not connected to any credit cards or direct debits.
• Make sure incoming payments do not go into your main checking account either.
• All money in and out of this account is on-demand only. You have to initiate it.
• Use high-interest savings account(s) for incoming funds (clearing accounts). Then while money waits for you to clear it, its earning interest.
• Get rid of real credit cards and switch to a Debit card attached to a bank account with no money in it. Only transfer money in when you need to make a payment via the Debit card.
• If your bank doesn’t clear incoming funds overnight, switch banks!
• Avoid cheques if possible. Incoming money from cheques is ok as the banked amount still shows up online.
• Find a bank that allows email alerts on your clearing accounts. Send those alerts to whoever manages your accounting software so they can be entered as they occur.
• If bills need to be paid, transfer from main account to supplier and raise payment in accounting software at the same time.
• On the 1st of the month, raise any incoming interest as income in your accounting software.

Once you are used to it, real-time accounting will become intrinsic to the way you do business. With internet banking, mobile devices and remote cloud computing there is no need to “batch-process” your accounts monthly, weekly or even daily. This is typically prone to error. Your suppliers and customers will appreciate the speed of your accounting and it will save you lots of time going over things retrospectively – especially at tax time.