What if Square Embedded Accounting Into its Platform?

Over four million sellers, from solopreneurs to large international chains, use Square's financial operating system to sell their goods and services. 

While Square's small business customers love its point-of-sale (POS) and inventory management tools, its third-party accounting integrations have been known to routinely cause inefficiencies and even explosive endings to customer relationships.

The good news is that this could change—if Square offered embedded accounting. 

Embedded accounting offers a way for service providers like Square to integrate enterprise-grade accounting features directly into their existing platforms. Embedded accounting solutions run invisibly behind the scenes, allowing these platforms to provide white-label, on-brand accounting experiences without having to build complex accounting infrastructure from scratch. 

Read on to learn about the possibilities that embedded accounting unlocks, using Square as an example. We’ll discuss the problems typically caused by Square’s third-party accounting integrations—and what embedded accounting could bring to the table instead.

What Is Square?

Square started off as a financial service provider known for its mobile card reader—a first-of-its-kind technology. Today, Square’s integrated hardware and software systems extend beyond POS solutions to include areas like appointment booking, checking accounts, loans, payroll, CRM, and inventory management. 

Does Square Offer Accounting?

As a horizontal SaaS provider, Square offers nearly everything a small business needs to thrive. Everything, that is, except for native accounting functionality.

While Square itself doesn’t provide full-fledged accounting software, it does integrate with companies that do. 

For example, Square's POS and online payment systems can sync with accounting and bookkeeping software like QuickBooks and Xero, automating the import of sales, refunds, and transfers. Square also integrates with the IRS, allowing customers to file federal and state payroll taxes and make payments directly from Square’s platform.

What’s Wrong With Square’s Accounting Integrations?

Third-party accounting integrations are a cost-effective way to get your customers’ systems to talk to each other and share information. But these integrations also create serious problems, including: 

Customer friction

The need to switch between multiple platforms, processes, and support channels adds unnecessary complexity to customers’ financial workflows—complexity that can ultimately affect a business’ bottom line.

Data reliability issues

Real-time data synchronization gaps can lead to inconsistencies across different platforms, compromising Square’s dependability.

Service resolution bottlenecks

Technical issues become more complicated as customers navigate between various support teams, each with different response times and service levels. For Square, this can lead to a poor experience and ultimately customer attrition.

Lost revenue potential

While third-party integrations may seem cost-effective at first, they siphon away Square’s revenue streams and divert customer value to external accounting providers.

Constrained product evolution

Being tied to third-party development timelines limits Square’s flexibility to adapt to emerging market demands and customer requirements. 

Disgruntled customers haven’t been shy about calling Square out on community forums for its difficulty resolving long-held pain-points related to third-party integrations. Consider this review from a Square customer about its QuickBooks Online integration:

As Square continues to grow its presence as a business technology platform, its product leaders will be faced with a choice: 1) Spend effort and resources contending with integration hiccups, or 2) give customers the option to handle their accounting needs within Square’s own ecosystem. 

Embedded accounting is a cost-effective way to achieve the latter.

Imagine if Square Offered a Fully Integrated Accounting Solution

What if Square could prevent clunky accounting applications from muddying its customer experience? What if Square’s customers could perform their bookkeeping and accounting tasks from within Square’s platform instead of going back and forth from QuickBooks? 

This is more than possible if Square decides to embed accounting into its business technology platform. 

Square Could Take a Shortcut to Market Leadership

As a holistic business technology solution, some software review websites already lump Square in with accounting software. For example, software review company Sonary categorizes Square across a variety of categories that include accounting and bookkeeping. 

The problem is that when we compare Square with native accounting solutions, it becomes clear how its business technology platform falls short of this category.

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❌ General Ledger

❌ Bookkeeping

❌ Manages Accounts Payable/Receivable

❌ Income & Expenses Tracking/Management

❌ Account Reconciliations

❌ Financial Reporting

❌ Receipt Scanning

✅ Invoicing

Source: Sonary

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Technology leaders understand the advantages of fully integrated solutions. As Sonary writes: 

“Square’s biggest strength lies in its integration of accounting and payment systems. Unlike standalone accounting software, Square combines POS functionality, invoicing, and financial reporting into one platform.” 

With embedded accounting, Square could quickly build out accounting features to create a more robust business technology offering. Instead of the above, Square’s accounting feature set would look like this:

✅ General Ledger

✅ Bookkeeping

✅ Manages Accounts Payable/Receivable

✅ ncome & Expenses Tracking/Management

✅ Account Reconciliations

✅ Financial Reporting

✅ Receipt Scanning

✅ Invoicing

Embedded accounting could help Square capitalize on the advantages Sonary describes, taking an intelligent shortcut to market leadership at a fraction of the in-house development costs.

Square Could Help Customers Save Money and Grow Their Business

One of the reasons Square’s customers love its platform is that it saves them money on bank fees. Cost efficiencies like these contribute to the growth of small businesses. This is extremely important considering that as many as one in five small businesses fail within their first year for reasons that include issues with cash flow management.

If Square had embedded accounting, it could help customers further streamline their financial management, creating new growth opportunities and improving outcomes through time and cost savings. 

Small business customers spend 20 hours or more on accounting per week. Instead of forcing customers to contend with shaky integrations, Square could offer native accounting features that automate routine financial tasks like business expense tracking and reconciliation. 

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Learn about the strategic role of expense tracking in SaaS →

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Square Could Improve its Customer Experience

If you visit Square’s marketplace for accounting and tax integrations, low customer ratings offer a grim window into how Square’s third-party accounting integrations impact its customer experience. QuickBooks Online and Xero, Square’s most popular accounting integrations, each sit comfortably below 4 stars:

It’s not the technology itself that customers dislike. In fact, tech adoption is growing, with 81% of small businesses planning to increase their use of technology platforms in the future. Rather, negative consumer sentiment toward Square’s accounting integrations points to another customer experience trend: platform consolidation.

If Square embedded accounting functionality into its platform, then customers would no longer need to juggle multiple platforms to complete financial and accounting tasks. Instead, everything would be available from Square’s singular business technology platform.

When you’re reliant on third-party integrations, customer experience improvements are a matter of two. With embedded accounting, Square would have more control over its customer experience, allowing for the product roadmap transparency customers are actively asking for.

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Related reading: What would it look like if Toast embedded accounting? →

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But what would this actually look like in practice from a small business owner’s perspective? 

Embedded Accounting in Practice: Maya’s Jewelry Store

To illustrate how embedded accounting could transform business operations for Square customers, let's explore how a fictional jewelry store owner’s experience with financial reconciliation could change if Square embedded a native white-labeled accounting integration into its financial solution.

Before Embedded Accounting: Ongoing Reconciliation Nightmares

It's the end of the month, and Maya sits down to match her Square transactions with her bank deposits. Within Square's POS, she sees a batch of Sales Transactions that total $800, including a $500 sale and a $300 sale. But when she checks her bank account, there's only one deposit from Square for $600.

After digging through Square reports for the missing amount, she realizes that $21.10 represents credit card processing fees. There was also a $178.90 Square Capital payment taken out of her deposit for a small loan she took from Square a couple months back. 

To properly record this in QuickBooks, Maya manually creates the loan payment and creates an expense for the merchant fees. The process is complicated:

1. Maya must first add a new transaction from Square's App Transactions page in QuickBooks.
2. Then, she needs to match it using the Bank Transactions tool in a specific sequence.
3. For the loan portion, Maya must create a separate line item to properly track all of her income while still paying down her loan.

Maya knows that if she performs these steps in the wrong order, it could make a mess of her records: Last month, she spent nearly eight hours fixing corrupted entries. 

After three hours of careful work and triple-checking her entries, Maya completes the reconciliation process within QuickBooks for just one week’s worth of transactions. While it went more smoothly than last month, Maya is frustrated enough that she is considering paying for a third-party connector app even though she's already paying for both Square and QuickBooks. 

It would be expensive, but what else can she do? She’s tired of spending her time wrestling with siloed financial systems when she could be designing jewelry or serving customers.

After Embedded Accounting: Redirecting Efforts Toward Growth and Creativity 

If Square embedded accounting, Maya's reconciliation process could become near effortless. Rather than spending hours maintaining her financial records inside of QuickBooks, her end-of-month workflow might look like this:

1. Maya logs into her familiar Square dashboard and immediately sees recent transaction components properly categorized:

• $800 in gross sales
• $600 in deposits; by clicking on that $600 number, Maya can see individual line items for:
  
  • $800 in credit card payments
  • $21.10 in processing fees automatically calculated and categorized
  • $178.90 for loan repayment marked as cash received and tracked separately

2. At each step of the way, the system automatically reconciles everything:
   
   • When the $500 and $300 invoices are sent out, the $800 Maya earned in revenue is accurately tracked
   • Once the customers pay those invoices via credit card, the invoices are marked as paid. Merchant processing fees and loan interest are categorizedfiled as an expense. The loan balance is decreased, and money moves into the Square holding account
   • When the $600 deposit hits her bank account, the system automatically reconciles it against the above transactions, simply treating it as a payout bank transfer (as opposed to duplicate income)

3. General Ledger accounting transactions are all created automatically under the hood, with zero manual entry from Maya!

If Square extended an embedded accounting solution to Maya, her financial statements would update with the correct figures in real-time. The embedded accounting provider’s backend algorithms would find and reconcile bank deposits with associated payments, and Square’s dashboard would clearly display the relationship between gross sales, fees, cash, and bank deposits. 

By eliminating the technical complexity and integration errors that plagued her bookkeeping, Maya would finally have the financial clarity and confidence she needs to make informed business decisions. She would feel confident that her financial data is accurate because it no longer has to go through several platforms as part of good record keeping.

Best of all, by reclaiming hours each month that were previously lost to time-consuming reconciliation efforts, Maya could focus her energy on what inspires and fulfills her: perfecting her craft and growing her boutique.

How Can Square Embed Accounting Quickly and Cost-Effectively?

Square customers love the simplicity and speed of its POS system and the time savings made possible by its inventory management tools. But they just don’t feel the same way about its integrations to third-party accounting platforms like QuickBooks Online. From shifting accountability when issues arise to missing opportunities for tool consolidation, these integrations create unnecessary friction in what could otherwise be a seamless, single-platform accounting experience.

The future of business technology lies in comprehensive, integrated solutions that address all aspects of operations, from point-of-sale to back-office accounting. As Square continues to evolve beyond its POS roots, embedded accounting could be the key to delivering the fully integrated experience customers deserve. By closing the accounting gap in their platform, Square has the opportunity to not only better serve their existing customer base but also to capture a larger share of the growing business technology market.

To achieve a fully-integrated accounting solution without building from scratch, Square would need to partner with an experienced embedded accounting provider that offers advanced accounting capabilities right off the shelf. For fintech companies like Collective and Unit, that provider is Tight.

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Read the Collective case study →