Cloud Accounting

Online Accounting Software and Multi-Currency

Written by Greg Lam

We’re in a global world and every business is now global also… right? That means that your accounting software can handle dealing with business in multiple countries—or can it? The feature that will help out your global business most is multi-currency. Most accounting software has this, but what each is capable of doing is far from standard. This article focuses on online accounting software and multi-currency, and on assessing the various country editions that vendors provide.

First, let’s break down the multi-currency options and features that a global business would want to look for in online accounting software:

  • Base currency and country editions
  • Invoices and expenses
  • Bank accounts
  • Real-time multi-currency reporting

I’d like to point out that there are other considerations for global businesses, such as sales taxes and payroll, but this article will not focus on those.

Base Currency and Country Editions

First, let me explain what base (home) currency is. This is the primary currency that your company will be doing business in. If you’re in the US, this is most likely USD, while if you live in Canada, it would most likely be CAD. It is the currency that you’ll use when generating reports and filing taxes.

Some software will let you use any currency as your base currency, no matter the country you’re signing up from or country edition you’re using. However, please be aware that some software will not let you change your base currency to whatever you like. This is probably not a big deal for businesses, since they are most likely doing business in the same currency as the country they are located in, but this can pose problems for accounting businesses that deal with clients in multiple countries and in multiple currencies.

How software acts can also vary depending on the country edition. For example, the Canadian version of QuickBooks Online allows you to pick a home currency in any currency you like, but the US version has no option other than USD as the home currency.

Another consideration for accountants dealing with multi-currency is whether or not you can access businesses in different countries using your online accountant portal. In QuickBooks Online, you can only create and access US edition companies. A workaround is to get the business to add you as a non-accountant user (although you wouldn’t be able to access the QuickBooks Online Accountant portal with its special tools). Another alternative, is to set up a second online accountant account in the country of your client.

online accounting software and multi-currency

Intuit

By way of comparison, Xero does allow accountants to create and access businesses in any country edition. However in Xero, like in the US edition of QuickBooks Online, whatever country edition you choose results in your being forced to use that country’s currency as the base currency. In contrast, Zoho Books allows you choose any currency as your base currency, no matter the country edition.

The more complex software won’t let you change your base currency once you set it, but less complex ones, like FreshBooks, will.

Invoices and Expenses

Invoicing is the most common multi-currency feature you’ll see in online accounting software. Most software can accomplish this task. It’s the technical details of how multi-currency works that really matters. You’ll want to look for the following features:

  • Can the customer pay the invoice online using a foreign currency? For example, if you create an invoice in £ (pounds), can a UK customer use their UK credit card to pay in that currency?
  • Are foreign currency transactions kept in that currency, or are the amounts automatically converted to your base currency?
  • Can you invoice a customer in more than one currency?

FreshBooks allows you to invoice and collect funds in a foreign currency, since they allow the use of third-party payment processors like Stripe and PayPal. On the other hand, your only choice of payment processor with QuickBooks Online is Intuit Payments, which converts any foreign currency transaction into your base currency. So in QuickBooks Online, even if you want to bill out in £s, you won’t receive £s in your bank account if you accepted the payment via Intuit Payments.

An issue I ran into with Intuit Payments is that in the US edition I was testing, if I made a transaction in CAD, the accompanying payment form would have US-based requirements like asking for a Zip Code (in Canada, we have postal codes that contain number and letters, like R2K 1F2). I’m told that if you enter a fake Zip Code, like 00000, paying customers can bypass this requirement. In my tests, I couldn’t get this to work using the customer payment form acting as a customer. However, I was able to enter the payment as a business owner, from within QuickBooks Online itself.

Something else to consider is how the software manages customers who you bill out to in multiple currencies. For example, QuickBooks Online and Zoho Books make you create a new customer for each currency you want to invoice them in. Xero and Kashoo don’t have this requirement. This is not a massive hurdle to get around, but it does mean a duplication of customer in certain situations.

Xero has an issue when it comes to expenses, in that its expensing functionality is not completely usable in multiple currencies. The Expense Claims feature can only be used in the company’s base currency. Expense claims are used for purchases made by non-company funds (such as when an employee pays for something and needs to be reimbursed). Xero does allow for multi-currency bills to be entered, but you can’t pay those bills in batch. If you happened to enter 10 receipts that you paid for out-of-pocket in a non-base currency, you’d have to individually pay each invoice. Xero, despite its strong multi-currency functionality, doesn’t do a great job on the expense side of things.

Bank Accounts

There are generally two ways to handle multi-currency in accounting software:

  1. Only allow multi-currency transactions to touch Income & Expense accounts.
  2. Allow multi-currency transactions to touch all accounts, including Balance Sheet accounts.

The first way is easier to manage, but limiting. This means that you can’t have bank accounts or credit cards in foreign currencies. Any invoice or expense entered is automatically converted to a base currency. This keeps things simple, but obviously won’t work if you hold funds in foreign currencies.

If you hold funds in foreign currencies, you’ll want to use software that allows for bank accounts in multiple currencies, but this presents reporting challenges, as will be discussed.

Real-Time Reports

The quality of reports largely depends on how multi-currency is handled on the back end. If currencies are used in balance sheets, as in allowing bank accounts and accounts receivable in various currencies, you may be better able to get an accurate picture of a company’s financial position in any given moment of time. Whether or not this is the case depends on whether the accounting software provides automatically adjusted unrealized and realized currency gains accounts.

How real-time reporting works is that for any currency sitting in non-base currency balance sheet accounts (like accounts receivable), any fluctuations in the value of the currency will cause unrealized gains (or losses). Once the funds in the non-base currency balance sheet account are transferred to a base currency balance sheet account, the unrealized currency gains (or losses) are locked in and the difference is posted as a realized currency gain (or loss) in the Profit & Loss report.

With true real-time reporting, you should be able to change the date of your Balance Sheet and Profit & Loss reports, and get updated figures that correspond to the fluctuation in currency exchange rates. For example, if you had $1,000 in foreign currency sales on January 1, if you check the Profit & Loss report it should be valued differently if you pull a report up on January 1 vs. January 7.

In Zoho Books and QuickBooks Online, you won’t have the option of real-time reports. You’ll have to enter exchange rates as of certain points in order to revalue the foreign currency balances you hold in accounts. Zoho Books does have an exchange rate feed, but according to their documentation (and my tests) it only affects invoices, and would not provide real-time rates for all your reports.

FreshBooks allows you to invoice and accept payments in a foreign currency, but there’s no system-generated Balance Sheet report in FreshBooks, so you won’t be able to see the fluctuations of the value of your foreign currency assets.

Xero is about the only online accounting software I’ve reviewed that seems to handle multi-currency reporting in real time.

Conclusion

For businesses that don’t hold onto multiple currencies (i.e., you don’t have foreign currency bank or credit card accounts), you can get away with any online accounting software that offers multi-currency as a feature. This is especially true if you’re only processing a few multi-currency transactions a year. Even if the software doesn’t have multi-currency, you could manually calculate the exchange rates and enter the transactions into the software.

However, if you do hold balances in multiple currencies, you’ll want to choose software that allows you to have a bank account in a foreign currency, and preferably software that automatically calculates currency gains and losses.
As with most of my recommendations on choosing software, I advise testing out the software you’re considering by entering the various types of transactions you’ll need in multi-currency in order to answer questions like the following:
  • Can you accept online payment in multiple currencies?
  • Can you hold bank accounts in multiple currencies and set up bank feeds for them?
  • Can you easily enter foreign currency expense transactions?
  • Are the reports accurate and do they provide real-time valuations?
  • Can you manually enter exchange rates?
  • Can a single contact be invoiced in multiple currencies and can you choose a default currency for that contact?

Right now, multi-currency functionality is not especially strong in any of the software, save for Xero, and even Xero has issues in dealing with certain types of transactions, as mentioned in the expenses section of this article.


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About the author

Greg Lam

Greg Lam is a passionate small business guy who loves technology and automation. He holds a BBA from Simon Fraser University, Canada. He's a Certified QuickBooks ProAdvisor, Certified Xero Partner, and Kashoo MVP. His business interests are focused on online accounting and how it can be used to streamline and automate a company’s accounting processes. He currently lives in Tokyo, Japan.

Greg operates the Small Biz Doer website, an "Entrepreneur's Guide to Small Biz Bookkeeping." He is the author of Online Accounting Software: Finding the Right Match, published by The Sleeter Group.

Connect with Greg on Twitter, Google Plus, YouTube, LinkedIn, or Facebook.

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