Should Indian SMBs Replace Accounting with AI: Challenges and Opportunities

India has tens of millions of small businesses and enterprises, yet accounting remains surprisingly manual. 

Even when a business uses Tally or another accounting system, someone still has to enter invoices, categorize transactions, reconcile accounts and prepare information for tax filings. 

Bookkeeping along with related services remain manual, and it’s surprising that still many find it difficult to answer “How much cash do I have?”, “Who owes me money?” or “What were my sales this month?” And there are other things like GST compliance and invoice management. All critical yet manual, and slow moving.

Over the years, many platforms have tried to address this gap. And some aspects have been solved to some extent. However, the advent of AI has changed the technology landscape, and it’s important to understand whether this has reached to the lowest-end of SMB spectrum in terms of workflow management, bookkeeping, and so on. 

The first challenge is moving millions of SMBs from conventional platforms to new-age solutions that are built with AI at their core. Given India’s massive size and diversity, it’s certainly a mammoth task.

Pei-Fu Hsieh, co-founder and CEO at AiAccountant, tells Entrepreneur India that replacing existing software may not be the right way.  

“We didn’t want to force millions of Indian businesses to replace systems that already work for them. Tally is deeply embedded in the Indian SMB ecosystem, and the switching costs of moving to a completely new ERP can be significant. In many cases, the problem isn’t where the books are stored — it is the amount of manual work required to keep those books updated,” he said.

“Our approach is to sit on top of the systems businesses already use and automate that work. AI Accountant can take information from invoices, bank transactions and other financial documents, understand what they mean and help keep the books up to date.

This lets businesses adopt AI without undertaking a major ERP migration. We are trying to remove the manual work around accounting, rather than asking businesses to change everything they already use,” Hsieh continued. 

According to Rashid Ali, Co-founder of Cashlo App (MJ Digital Services), fresh tools can help a lot, take daily cleanup work, for instance. 

They can sort the numbers from bank notes, bring info out of bills, read receipts, link one entry to another, and flag anything that seems off. They can also help owners see what the numbers actually say. That usually supports a gradual shift to digital routines at a steadier pace.

“In B2B fintech, the main goal may not be to replace the ledger. A more practical option is to improve the money process they already have and connect each step. This is most important for micro and small businesses. They tend to choose updates when the gains are obvious, like saving time or meeting compliance, not when they feel they must adopt a whole new platform,” Ali explained. 

We can derive that manual interventions or involvement is not going to go away anytime soon, but AI can help. 

“While manual reviews are not going away anytime soon, AI-enabled systems can quickly learn patters and achieve accuracy for recording such nuanced used cases. Especially, when these are repeated patterns. This allows for better accuracy, omit human errors, and speed up the cycles to great extent,” said Shrijay Sheth, founder at Legalwiz.in. 

Sheth, however, highlighted that India’s MSME market is a sizable but challenging opportunity. Many small businesses are operated on whatsapp, and not CRMs. Employees and even business owners shy away from committing to large-scale tech transformation or learning curve. 

“Hence, the ripest opportunities are to build automations that silently work at the back-end without changing their current daily routines. Workflow automation, reconciliation and reporting, automated transaction recording from invoice images or bank statements – these are some of the lowest hanging opportunities,” Sheth said.

While manual reviews are not going away anytime soon, AI-enabled systems can quickly learn patterns and achieve accuracy for recording such nuanced used cases. Especially, when these are repeated patterns. This allows for better accuracy, omits human errors, and speeds up the cycles to a great extent.

Indian financial documents are far from standardized. Businesses deal with different invoice formats, poor-quality scans, handwritten documents, multiple languages and information presented in inconsistent places. Simply reading the text on a document isn’t enough, and the system needs to understand what that information means from an accounting perspective.

Over the years, visual recognition technology has significantly improved. This has resulted in extensive usage of OCR. 

Optical Character Recognition (OCR) technology essentially converts typed, handwritten, or printed text from images and physical scans into machine-readable, editable digital text. 

But is it perfect? Experts have mixed opinions about it. 

For instance, Hsieh’s AI Accountant combines document understanding with accounting context and historical transaction data. But he also cautions that AI will not always be 100% correct all the time. 

“When the system is uncertain or a transaction requires judgment, it can be reviewed by a human accounting professional. The combination of AI handling volume and humans handling exceptions is what makes the system practical for real-world accounting,” he said.

Ali rightly says that the OCR in this context is not just about reading characters. The system should be capable of understanding the entire transaction, and of course, context. It should be capable of understanding what is being purchased, if the GST fields are properly filled, and even flag in case of discrepancies. 

Building such systems is easier said than done. Indian SMBs face much more friction. SMBs in India face extra friction. Files may include regional scripts. Some entries can be handwritten. Layouts differ from one supplier to another. Photos can be blurry. Tax parts may be missing or cut off. 

“AI can do more of the basic extraction and the initial sorting, but a business still needs a plan for odd cases, unclear pages, or items that carry higher risk. So the practical goal is exception-based accounting, not a promise of zero people. As the system gets more accurate, staff can enter fewer items and spend more time checking the small set of cases that truly need judgement,” according to Ali. 

To sum it up, the future of accounting for Indian SMBs lies in a symbiotic relationship where AI handles repetitive data tasks while human experts manage the nuanced exceptions, allowing businesses to modernize their workflows without the friction of replacing the legacy systems they rely on.