It is not considered unusual if you picked up an everyday article or a children’s book in the UK or the US, turn it around and see a “Manufactured/Printed in China” stamp on it. This though, was how China was known a decade ago. With the amount of FDI flowing into the region, the country is now a top contender for overseas investors wanting to take advantage of the support system and lower cost efficiencies.
The stories we hear from US or British founders setting shop in China and working closely with suppliers to produce world class services and goods are more common today. They often share common traits – the ability to speak Mandarin, years spent in China as a resident, memberships in common business groups. A lot of them also share a common frustration – the difficulty in understanding the overall business finance position from a collation of the Fapiao; the Chinese system of invoicing.
The Fapiao – know more
The fapiao is a legal receipt that acts as proof that a customer has purchased either goods or services. The system is very sophisticated and it an essential part of their tax law and is mandatory.
Currently, there are two major types of fapiao being used. The general fapiao and the special value-added tax (VAT) fapiao. The two systems are similar except that special VAT fapiao has an extra function of tax deduction while the general fapiao doesn’t. The VAT fapiao contains more information than the general one and such information includes a trader’s tax code, address, telephone number, and bank account information.
When a purchase is made and the VAT fapiao is used, the amount is divided into taxable and non-taxable components. On the other hand, the general fapiao only shows tax-inclusive figures. Usually, general VAT fapiao can only be used if the special VAT isn’t available.
Does Chinese SMEs use cloud accounting technology?
The penetration of cloud accounting into China is still at a nascent stage. The larger players like Xero and Quickbooks do not have a country version available and it is not on their immediate plans to roll our specific versions for China.
MEGI is a local cloud accounting software that has now emerged in China and offers online facilities. There are accounting firms now changing the way bookkeeping is being handled by using some of the core features offered by this software. A shift, we believe, has been brought about by the way small businesses around the world demand for real-time actionable data on their companies.
Xero’s global version is used by many businesses around SEA, most commonly in regions such as Singapore – evidenced by the many Xero partners and an Asian HQ, the company now has in the red dot. Many of the features used by other online software were originally noticed on Xero – such as cash coding that allows bank accounts to be reconciled with considerably less effort.
Xero for China?
As long as there is a physical requirement to maintain vouchers, there is no way an SME can completely adopt the cloud. The working system in mainland China functions also on the back of the ability to conduct day to day business in Mandarin. So, you do need your local Accountant / bookkeeper to keep things in check.
Having established that, with a bit of ingenuity, a host of day to day activities can be replicated on Xero to provide a more functional “online finance asset” for top management. Such as,
Bank reconciliations for Chinese banks would work much the same way as for any location where direct bank feeds are not available. The process is simply to import all the banking transactions via an excel format into your Xero account and reconcile them against receipts and payments. We notice that Megi’s direct bank feed feature work much the same way.
While there is an argument that it would be repetitive and time consuming to re-create customer invoices and purchase bills on Xero, there is a greater advantage for having these recorded on a secure online portal – they remain there for a good amount of time with a very clear audit trail.
For founders from other parts of the world such as the UK, US or Australia, there is an advantage in keeping transactions on a common platform that might be used by their associated companies.There is a distinctive advantage in having the same Chart of Accounts for example, across all your group companies. We have noticed this to be one of the main reasons why Chinese companies with overseas founders have an inclination to go the extra mile to capture transactions on Xero. Imagine all your group organisations on the same platform, all your management reports would look exactly the same albeit with varying numbers. Capturing details for group reporting, consolidations and valuations becomes less catastrophic.
Xero works currently with more than 500 industry and function specific add-on solutions. It is almost impossible for regional software providers to compete with that scale. So, the tools you use across your business – be it CRM, time tracking systems, project management tools or business intelligence add-ons, are uniform across the group. The possibility of creating a centralized, virtual finance department on the cloud is very real and very achievable.
Ultimately, it all boils down to how innovative do you want to get with your internal processes. What’s the most important thing from a long-term perspective? If there is a global outreach for the business, then by all means having a common base to record financial transactions is the way to go and we feel “Xero for China” is a winner.
Pic credits - Flickr.com
The picture of the Fapaio shown is from a client of Evalua8 Corp, it cannot be reused without permissions from Evalua8 and their client.