Landscape Map: Bookkeeping becomes understandable

The ever-growing bookkeping landscape

This is part 6 of a 6 part series on the trends that are changing Software-As-A-Service (Saas) for Small & Medium Enterprises (SMEs):

🛒Trend #1: Shopify’s growth creates new markets
🍉Trend #2: Restaurants fight for independence from delivery and discovery platforms
👋 Trend #3: Work, reinvented
👔 Trend #4: The rise of vertical biz management software
🤴 Trend #5: HR made simple(r)!
👹 Trend #6: Bookkeeping becomes understandable - Below

If you'd like to have your company featured in this article, feel free to reach out! We would love to hear from you.

Intro: (Tax) Seasons Are Changing

As tax season arrives, the typical accounting process for small and medium businesses (SMBs) resembles the following: uploading receipts, invoices, and expenses on a drive; sending them to an accounting firm; waiting for the documents to be processed; getting an answer about some missing invoices a month later; searching through a plethora of physical files for a 6 month-old receipt (which turns out was paid by another employee!), and eventually having a clear understanding of the financial situation of the company months later.

On average, SMBs spend approximately 120 days per year on admin and bookkeeping tasks (ref). It almost goes without saying that there is a very real opportunity for the entrepreneurs that manage to simplify data extraction, expense management, accounting, and accelerate the shift from pen and paper processes to digital solutions.

Multiple tailwinds are accelerating the SMEs accounting market:

(1) Open Banking allows businesses to integrate and manage their financial stack. Entrepreneurs can leverage financial institutions' APIs to build applications and services and ultimately benefit from greater financial transparency made possible with open data policies to deliver more financial insights. 

(2) Banking as a Service (Baas) like our portfolio company Weavr make it easy to rapidly embed and offer financial, card, and payment services.

(3) API cloud account platforms like Xero (US) or Quickbooks (US) have grown significantly over the last years, leading to SMEs demanding a more sophisticated financial stack.

(4) COVID-19 accelerated the need to digitize and automate accounts payable and accounts receivable. As SMEs were forced to operate remotely, they came to require new solutions to integrate with their accounting and banking systems.

(5) Regulators increasingly make digital invoicing and tax accounting a legal requirement, to increase transparency and overall traceability of the system.

Following these shifts, we expect the need for innovative pre-accounting software, account payable and account receivable platforms, tax filing solutions, and other financial services for SMBs to be a major SMBs SaaS trend.

1. Bookkeeping (aka pre-accounting)

Bookkeeping is the process of collecting, digitizing, and storing all receipts and expenditure documents, before processing these in accounting. Today, SMBs are relying on archaic processes where receipts are stored in filing cabinets, and PDF invoices are put randomly on a Google Drive (at best!).

⭐ Pre-accounting software built for SMBs: Desktop platforms like Quickbooks (US), iPaidThat (France), SevDesk (Germany), AutoEntry (Ireland), Likvido (Denmark), Bokio (Sweden), and mobile-first software like Fiskl (UK), CountingUp (UK) or Coconut (US) can be used to digitize paper receipts via optical character recognition (OCR), as well as to detect and store PDF invoices sent via emails. Some of these solutions are also able to notice which invoices are missing through bank conciliation. The obtained data can also be used for treasury management as well as for simplified financial accounting.

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iPaidThat's value proposition

  • Pre-accounting software built for accounting firms: Zeitgold (Germany, acquired by employee payroll and compliance platform Deel), Silverfin (Belgium), Pennylane (France), or Inqom (France) are cloud-based accounting platforms shared between accountants and business managers

    First, these products act as data repositories. Invoices and expenses can be uploaded and digitized via optical character recognition (OCR) software. They tend to integrate with financial platforms (Qonto, Sellsy, Stripe or Recurly for Pennylane, for example), and centralize all the financial data, documents, and insights for SMBs. This standardized data can then be connected to popular accounting software like Sage or Xero.

    Secondly, they are also collaborative platforms where accountants can draft compliance reports. Accounting firms can then create real-time financial dashboards to visualize data and advise their clients. This opens the door for a new source of revenue for accounting firms, which can more easily charge for these advisory services and for granting dashboard access.

    Given the fragmentation of the SMB market (which is not a "winner-takes-all" environment), these bookkeeping solutions rely on partnerships with accounting firms to scale rapidly. They build their solutions with accounting firms first in mind which allows them to quickly grow through their SMB client network.
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Accountant-first: Silverfin's landing page

Here, we see two main types of go-to-market approach:

First, around 50% of SMBs outsource their accounting work today. This implies that many do not want to spend too much time picking a specific financial data repository software. Instead, they rely on their accountant’s preferences and get access to real-time cash flow dashboards through the software promoted by their accounting firm. In this scenario, accounting firm-first software drives the digitization of SMBs. These platforms are able to reach a large part of the SMB market, as they leverage accountants as channel partners. The startup’s  task is hence twofold: 1) Show the value of their platforms to accountants 2) Convince them to further promote them to their clients.

In the second scenario, SMBs decide themselves the data collection and data visualization software that they want to use. Their accountants need to adapt their processes to the accounting software used by SMBs to exploit data. Over time, non-digitized accountants might see the value in these platforms and become partners to promote and sell licenses as a part of their services. 

Regardless of the target of choice, partnering with accounting firms seems to be a necessary step to scale rapidly in this highly fragmented space. 

Real-time cash flow management software: With 82% of businesses going bankrupt because of poor cash flow management, it is vital for SMBs to keep a transparent overview of their finances at all times. Agicap (France), Fygr (France), (France), Futrli (UK, a portfolio company of Headline), FloatApp (UK), Monit (US), Trovata (US), Fluidly (UK) Satago (UK), CashLab (France) provide solutions to integrate with bank accounts and financial data repositories where receipts and invoices are stored. This way, these products can detect patterns in payments and expenses and provide treasury visualization and forecast, which they compile in treasury dashboards.

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Predicting business future: Futrli's homepage

2. Account receivable and account payable software (AR/AP)

Accounts payable and accounts receivable (AR/AP) is the process of receiving payment from customers or paying due amounts to suppliers.

The AR/AP function is invoice-dependent (paper or PDF), email-based, and non-automated in most SMB companies

On the account receivable side, SMBs want to send invoices smoothly, send automated follow-ups for unpaid ones, and collect, recognize and reconcile payments. On the account payable side, SMBs want to receive digitized invoices, validate them collaboratively or at best automatically on a platform (with a chat, task assignments, rules), proceed to KYB if required, and pay them easily (one-click payment) via integrations to their bank account or (virtual) corporate cards. Then, all this financial data is synced up with their bookkeeping software.

The market can thus be segmented between account payable and receivable software and more general financial service providers which build an account receivable/payable layer around their financial products. The differentiation is not in the product (they all have kind of similar features), but lies in the way the transactions are managed.

Account payable software: Regate (France), Libeo (France), Candis (Germany), Stampli (US), Likvido (Denmark), Airbank (Germany), Routable (US), AppZen (US, raised $100M), Nook (UK) built collaborative expense management platforms. Invoices can be uploaded, digitized, approved manually or automatically based on rules, and ultimately paid. The payment can be executed from the platform if integrated with bank accounts, otherwise, it will need to be executed manually. 

The challenge is to build a friction-free and autonomous AP platform, where repetitive tasks can be automated, and more complex ones can be processed in a more transparent fashion.

A screenshot from's landing page

For companies and chartered accountants: Regate's landing page

Account receivable software: Accounts receivable software creates a more frictionless way of sending invoices, collecting and reconciling payments. To deal with a high amount of customers (for example in the context of  B2B SaaS), GoCardless (UK, raised a $232M Series G round as of writing), Chargebee (US), or Recurly (US) manage punctual and recurring payments. Payments can be renewed or amended directly from the platform.

Financial service providers which built an AP software: Melio (Israel), Brex, (US), (US), Airbase (US), Spendesk (France), Swile (France, a Headline portfolio company) Soldo (UK), Pleo (Denmark), Moss (Germany) are used to generate corporate (virtual) credit cards and manage expenditures, two deeply intertwined functions.

Traditionally, the standard procedure for expense management is manual and laborious, with employees filing expense claims by physically tracking down and handing in receipts or scanning and attaching receipts to emails for approval. Up until now, SMBs have struggled to provide corporate credit cards to their employees (also due to the nature of traditional banking), with employees having to use their personal cards and expense them through software intended for large organizations (ie. SAP Councour).

Although the terms are used interchangeably, Corporate Cards can be distinguished from Small Business Cards. Corporate credit cards are designed to meet the needs of established companies, typically those with at least $4M in annual revenues, 15-plus card users, and projected charges of $250,000 or more each year. Typically, with small-business cards, the primary cardholder is personally liable. On corporate cards the company is liable.

Major card issuers, such as American Express, Capital One, Citibank, Chase, and Wells Fargo, offer corporate credit cards. The cards are issued based on the company’s financial health, not the owners’ finances. Cards issuers require the company to have strong financials, plus good liquidity and cash flow. Depending on the type of card issued, if the employee is responsible for paying the credit card issuer directly for any charges, the credit card issuer checks the employee's credit before giving them a card as well.

The incumbent providers in the space are:

(1) Card Companies that issue Corporate Cards (i.e. Chase, Capital One, American Express).

(2) Multi-vertical software companies that offer spend management/business travel expense solutions targeted to large organizations (i.e. SAP Concur).

These solutions tend to be inadequate to the needs of SMBs for reasons that include:

- High and opaque fees associated with the corporate cards, and rewards that do not cater to the customer's industry.

- Long application processes, or employee personal liability requirements that do not match the reality of SMBs workers.

- Spend management software that is not tied to the cards, which means expenses need to be reconciled in a patchwork of distinct software products.

- Complex software implementationComplex software implementation. Many SMBs IT department is one person only or the business owner themselves, and they cannot allocate the resources to set up and maintain such tools.

- Being hard to manage or limited to individual features. SMBs prefer single, comprehensive platforms that can cover multiple pain points at once.

- Acquisition strategies that heavily rely on outbound sales, while most SMBs make software decisions based on online channels and recommendations from peers, friends, and family.

New entrants like Brex, Spendesk, Pleo, and Moss are fixing these pain points with:

  • Improved sales processes that focus on bottom-up adoption (i.e. Expensify users can download the app for free and start using the product).
  • Different credit approval processes. These often allow SMBs to receive automated approval decisions in seconds. Companies like Brex determine an applicant's creditworthiness by evaluating the company's cash balance, spending patterns, and investors rather than the business owner's personal credit score, which opens up access to corporate cards for businesses that typically could not access them (i.e. startups). 
  • Enhanced expense management product features such as a) custom approval workflows that cater to specific approval hierarchies, budgets and projects b) solutions that automatically detect receipt duplicated and verify manually-entered receipts c) continuous real-time sync with accounting and finance platforms such as QuickBooks, Xero, Oracle NetSuite, etc. This removes the need for arduous once-a-month statement reconciliations d) Visibility into financial data and transaction approvals, corporate credit card reconciliation and remittance, and insights into spend e) Control on maximum exposure they will accept for each employee by stipulating their individual unapproved spend. Eg: If a cardholder fails to submit their expenses in a timely fashion, card activity is suspended until historical card spend is approved.
  • New feature integrations with Invoicing, Bill Pay, Banking and Treasury: a) Platforms are integrating AP / AR automation features as a next step to becoming the financial hub for all business transactions b) Companies such as Brex have applied for a Banking charter offer a cash management account that allows companies to store funds as uninvested cash with the program bank, or invest them in a money market fund to earn yield. With no fees and unlimited digital transactions, this account offers a tech-first alternative to the traditional business bank account and removes the need for a company to have a separate bank account. 
  • More product choices beyond traditional credit cards, like prepaid, debit, and charge cards.

As SME clients mature into high-growth businesses, CFOs expect a full software suite to manage complex financial tasks. These financial service providers offer features such as integrations with major accounting software, dashboards to visualize treasury, management of employees' financial permissions, and accounts payable software. Most of these startups do not monetize their AP platform via a subscription but via a transaction fee as they process the transaction from the AP platform. 

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"7-in-1": Spendesk's value proposition

2. Other admin tasks

Tax Filing: In Europe, around seven million employees do not file their returns to the authorities for tax credits on an annual basis, which represents ~1.000€ of unclaimed tax credits at the end of the fiscal year. Small and medium-sized businesses choose not to spend hours filing such reports or paying an accountant to do the work for them.  

Claimer (UK), Taxfix (Germany) or MainStreet (US), TaxJar (US) built an intuitive interface where SMBs can answer a few questions, and get matched with the tax credits they could claim, helping SMBs navigate the tax system.

Tax credits made easy: Claimer's claim

Contract Management: As the volume of paperwork increases, it becomes a painful process to digitize contracts, keep track of all the clauses and track compliance risks. Thanks to progress in machine learning and natural language processing, companies like DocuSign (US, IPOed), Icertis (US, raised $291M), Conga (US, raised 117M$), Sirion Labs (US), Juro (UK), ConcordeNow (US), Pandadoc (US), ContractPodAI (UK), ContractBook (Denmark) developed contract and license lifecycle management software to streamline this process. They help manage risks and ensure compliance by monitoring the validity of particular clauses throughout their customers' transactional and legal documentation. Flaps (Spain) takes this one step further and has a platform that indexes key information within a contract so as to allow users to identify relevant information in a document more efficiently.

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Full contract lifecycle management: Concord's value proposition.

Many thanks to Ilan Nabeth for the invaluable research that made this series possible, and to Yusuf Janahi and Anna-Stella Fetha for your contributions!
See you in January with a new content series!