Jargon Buster: What is an API why do they matter for cloud accounting?

Over a third of leading UK accountants are already using online accounting in some form, and this shift towards cloud-based software means that you, your practice team and your business clients may already be using an Application Protocol Interface (API) without even knowing it.

But what is an API, how do they work and (crucially) how do they help you carry out the most effective kind of modern accounting? To answer these burning questions, here’s our lowdown on all things API and accounting-related.

Knowing your API from your elbow: the power of integration

An API is a gateway that connects two disparate pieces of software and allows them to integrate and talk to each other. To be able to share or import data to and from other software solutions, your cloud accounting software has an Application Protocol Interface (API).

By offering an ‘open API’ within accounting platforms like Xero, QuickBooks, Sage, KashFlow and FreeAgent, these providers give app developers and third-party software designers a way to connect their own software API to your accounting system.

Think of your cloud software’s API as being like the airlocks in the modules that make up the International Space Station. These APIs are the gateway airlocks that connect all the separate modules of the ISS together:

• They can open to let things IN (bank data, bookkeeping data, scanned documents etc.)
• Open to send things OUT (accounting data, sales data, tax information etc.)
• And CONNECT the modules to form a wider, flexible system (your accounting set-up)

The advent of the open API was a huge deal in the development of the cloud. Xero was the first platform to offer an API. Instead of having to move the data out of Receipt Bank as a CSV file, and then uploading it to Xero, data can flow seamlessly.

This opened up the market for app developers to make software that integrated easily and offered maximum utility to users.

APIs are already powering your online accounting

So far, so space age! But what does this mean in real terms for your day-to-day accounting? And how do APIs help your business clients get a better service from your firm?

APIs are lurking inside your broader practice systems, helping you to ping data, documents and numbers back and forth between your software tools. And it’s the speed and transparency of this data-sharing that make APIs such an invaluable foundational element of digital accounting.

So where are APIs doing all this hard work?

• Live bank feeds – clients’ bank information appears in their live bank feeds via your bank’s API integrating with your cloud software.
• Automated credit control apps – apps like Chaser and Debtor Daddy connect to your main platform and automatically chase late payment, based on shared invoice data.
• Cloud reporting and forecasting – reporting tools such as Futrli and Spotlight Reporting pull their business data from your accounting platform, via the open API.
• Online payments – online payment solutions like GoCardless and Stripe, integrate your incoming payments with your accounts and bank reconciliation tools through APIs.
• Automated bookkeeping – online bookkeeping solutions, like Receipt Bank, can only function because of an API connection between our software and your systems. That's how we push data we extract from your bills and invoices through to your cloud software. Some APIs let us even take this further – Receipt Bank can now tell you instantly if a new upload matches an existing transaction in Xero.

It’s fairly clear that these hard-working APIs are part and parcel of nearly every element of your practice and client systems – and they’re constantly firing the correct zeroes and ones around your software to help you create the most efficient accountancy firm.

The next step for APIs and integration

So what does the future hold for connectivity and integration in accounting?

The easier it is to share and import data and documents around your system, the less time your team spend on data-entry, searching for the right files, or trying to translate clients’ accounting data into the right formats – and APIs are critical to this aim.

Tools such as Zapier help to connect those software APIs together in the most effective way, allowing automation of workflows and seamlessly movement of information from app to app.

API-enabled Tax

The imminent move in the UK to digital accounts, driven by HMRC’s Making Tax Digital initiative, is only possible because HMRC began opening up their API. The idea is that accounting and tax preparation software will be able to send data directly to HMRC, with no need to create a document, such as the SA103S, and submit it.

Expect to see plenty more about this handy tool as tax authorities around the world look to make their systems more streamlined and efficient.