ERP for Accounting & Financial Management: The Complete Guide
What is the first thing that comes to your mind when you think of ERP or Enterprise Resource Planning? Probably manufacturing, order management, or inventory. But, it can do more. And it’s only about time that you discover how ERP systems can help you streamline and simplify financial processes at your organisation.
If you are using a jumble of spreadsheets to track accounts payable (AP) and accounts receivable (AR), it’s time to switch to ERP. Because maintaining excel sheets is not only time-consuming but also fails to provide you with insights that can ultimately put your business in a precarious financial spot.
With ERP finance modules, you will be able to have better control over spends and cash flow as well. Moreover, you can easily generate key financial documents including cash flow statements, balance sheets, etc. and get rid of potential errors with artificial intelligence. This is why 23% of finance and accounting employees at various organisations vote in the favor of moving towards ERP. So, what is ERP? How can finance modules in ERP help you have insights into the financial data? Know it all in this blog from what is ERP to the benefits of ERP for finance and how you can use ERP for maintaining business continuity at times of economic disruption.
What is ERP?
ERP software system helps you to manage all the aspects of your business by connecting multiple business processes such as manufacturing, supply chain, financial, human resource management, etc. In addition, it comes with the capability to automate individual activities across departments in an organisation. You can easily manage end-to-end processes as well, thanks to the system of integrated software applications. Once deployed, your ERP platform can leverage common data definitions and operate on a single database for standardising and streamlining processes.
The phrase 'Enterprise Resource Planning’ was coined by Gartner in 1990 and continues to define success for businesses around the world. ERP systems typically come with different modules, each of which addresses specific business requirements.
Coming to ERP system examples, the finance module in ERP software can gather financial data and create different reports including financial statements, ledgers, balance sheets, etc. Each of the modules in ERP software uses the central database to pull and push information. As a result, all departments across your organisation get to enjoy a Single Source of Truth (SSOT) for different business areas. With smarter intelligence and process automation, ERP systems can help leaders evaluate business performance and financial health as well.
What is an ERP Finance Module?
Now that you have an idea about the ERP software system in general, let’s understand what ERP financial module is and what kind of benefits you can expect to enjoy. An ERP finance module allows you to seamlessly handle accounting and financial management functions. Besides maintaining standard account records, it is capable of handling transactions including expense reporting and invoicing as well. Often popularly known as ERP core finance or ERP financial management, the ERP finance module can execute advanced reporting functions such as profitability analysis and revenue management as well.
Does your business really need an ERP finance module? Well, because of being modular in nature, ERP software allows data sharing with core business functions. So, if any business function (for example, production, inventory, or purchasing) has an impact on accounting, the finance module will be able to capture and record it. This paves the path for accounting accuracy, helps you to meet financial regulations, and generate multiple financial reports.
Now, the consolidated financial data makes it easier for you to measure and improve corporate performance. Such is the beauty of ERP for finance and accounting. This is why businesses worldwide are replacing stand-alone accounting systems with ERP. Although the below list is not exhaustive, some of the key functions you can handle with an ERP finance module are:
- General Ledger (GL): This is necessarily the foundation of your entire accounting system. Using the General Ledger module, your business can easily meet different requirements related to financial management, budgeting, and accrual processing. In addition, you can integrate it with different operations and processes such as sub-ledger accounting, procurement, and cash flow management as well. GL works as a central node which makes it seamless for you to have a 360-degree view of financial status and run real-time supervision.
- Accounts Payable (AP) and Accounts Receivable (AR): With the Accounts Payable (AP) module, you can register existing supplier invoices and authorise/track incoming invoices at the same time. Depending on the nature of your invoices, you can easily automate the invoice generation and approval process as well. The Account Receivable Module (AR) module allows you to track payments to be received from customers. You may integrate a credit score management system with the AR module for getting real-time insights. In addition, the AR module helps you have access to financial analysis and statement reports as well.
- Asset Management (AM): The Asset Management module plays a crucial role in helping you manage fixed assets. Using the AM module, you can easily take care of user-defined depreciation, investment, disposal, fixed asset revaluations, and insurance information as well.
- Cash Management (CM): The Cash Management module comes in handy when you have to process and analyse all the cash related transactions for a specific period of time. The Cash Management module can be easily integrated with your preferred bank to automatically reconcile bank statements. It also allows you to visualise the cash flow and help you understand where you stand in terms of achieving financial goals.
9 Ways an ERP Helps in Financial Management
By now, you have a decent idea of tasks that can be accomplished with an ERP finance module. Let’s take a deeper look into it to understand how ERP software can transform the way you manage finances at your organisation.
- Profit Tracking: Tracking profit is one of the crucial finance processes for any business. Having an ERP finance module helps you to track profit and therefore get a bird’s eye view of the financial health of the organisation. This enables you to understand the major sources of profit, costs, and identify underperforming areas as well. Depending on the ERP software you are using, you may be able to automate the profit calculation by using account receivables and incurred costs. In addition, some ERP systems will enable you to project profit based on historical data as well. In a nutshell, tracking profit helps you to realise the next best move for your business in the current uncertain environment.
- Ledger Management: As a business owner, you simply don’t have the time to visit multiple platforms to view financial transactions for a specific period of time. This is where ledger management comes in. With ledger management, you can easily maintain a thorough record of all transactions and have a holistic view of assets, capital accounts, income, liabilities, and expenses. These transactions can be rolled-up or consolidated by using different accounting methods and represented in different currencies to meet the regulatory or management reporting needs of the organisation. So, how does this help? You get to have a unified view of your financial data which enables you to make better decisions and achieve business goals.
- Accounts Payable: One of the biggest benefits of using ERP for finance is control over cash flows. And, the Accounts Payable module plays a significant role in it. It helps you manage funds owed to vendors, process invoices, and capture all related financial transactions. You’ll be amazed to know that you can actually save up to $16 per invoice with the AP automation. Integrating payable data with the purchasing system, you can easily avoid human errors, save money, and increase productivity. Depending on the ERP software you use, you may be able to capture documents via an imaging feature that lets you convert invoices into electronic documents. And, the best part - your business will never be late in processing payments by utilising the automated payment functionality that seamlessly integrates with the global banks to make the actual payments.
- Accounts Receivable: The account receivable module is a must for customer-facing businesses. It helps you to track customer payments, manage customer invoices, and cash as well. You can also choose to go for payment gateway integration which will let your customers access invoices and make payments within seconds. With AR on automation, your business gets to enjoy a speedy collection process and have returning customers who enjoy the seamless process you offer.
- Fixed Asset Management: Want to capture capital expenditure and prepare budgets accordingly? That’s where the Fixed Asset management comes in handy. It is designed to help you track tangible assets, calculate depreciation, and meet compliance requirements. For example, if you want to calculate the depreciation value of manufacturing equipment and other company assets such as cars, office space, etc., this is the module you need. Rather than recording the capital good’s cost as an expense immediately, this module allows to depreciate the cost over the life of the asset using different depreciation methods and also reduce taxes at the same time. You may not be able to be accurate in all these calculations when you do them manually in spreadsheets.
- Risk Management: Top business leaders always want to minimise risks and ensure that their organisation remains protected at all times. Risk management tools in an ERP financing module helps you predict, analyse, and manage crises ranging from natural disasters to financial issues to legal liabilities to compliance risks. Besides enabling you to deal with such potential calamities, this module prepares you for ever-changing compliance regulations as well. In addition, you will be able to check credit risks i.e if your business has enough cash reserves to make accounts payable payments when customers miss payments.
- Reporting: Having access to real-time financial data is crucial for making data-driven decisions. The reporting features of a finance module in ERP aids you in making crucial decisions ahead of time and maintaining finances. With this module, you can expect to understand major revenue sources, expected sales and expenses, and much more. The customisable dashboard feature provides you with insights into the financial and operational health of your business at any given time.
- Multi-currency Management: The multi-currency management module makes it easier for you to handle accounts payable and receivable in multiple currencies. Because of the currency conversion feature, you’ll be able to sell your products across the world and work with vendors beyond borders. This module is usually part of the General Ledger module.
- Managing Taxes: Calculating taxes manually is a tedious task especially when your business operates in different sales tax jurisdictions. With prebuilt tax intelligence, the tax management module helps you execute sales transactions with proper regulations. With system taxation settings, you’ll be able to manage tax audit as well as tax reporting. Needless to say, the tax management module prevents your employees from spending time executing mundane tasks.
Benefits of Deploying ERP for Managing Accounting and Finances
By now you know the different ways in which an ERP can help your business manage financial processes, revenue, and expense. Let’s take a look at how your business can benefit from implementing a financial ERP system.
- Improved Productivity: Managing financial processes and creating reports manually can become a herculean effort for your business. With a finance ERP module, you can easily automate time-consuming tasks and save time.
- Boosted Transparency: With lack of financial transparency, your business may continue to suffer. The General Ledger module and the analytics dashboard help you to have a bird’s eye view of the financials of your business.
- Easy Budgeting: FInancial ERP systems also make it easier for you to visualise actual costs, and therefore create a plan and budget well-suited for your business.
- Financial Monitoring: Be it sudden sales spikes or fraudulent transactions, ERP for finance and accounting allows you to have a solid understanding of what is happening on the finance front of your business and also detect operational anomalies.
- Minimised Errors: With tasks and processes like data entry automated, ERP reduces the chances of human error in accounting and finances of your business.
- No More Missing Documents: With all the finance-related documents updated in your ERP system in real-time, your business stops suffering from losing documents.
- Access Data On the Go: With ERP, you and your employees can access necessary data even on the go. In addition, integrations with business systems like CRM, Payroll, Lease Management etc. provide you with real-time insights into the health of your business.
6 Best ERP Platforms to Consider in 2021
Whether you are planning to get an ERP software for your business or want to upgrade your existing system, you know how ERP systems can automate tedious tasks, enhance operational efficiency, save time, and positively impact revenue. Here are six best ERP platforms that you should consider in 2021.
NetSuite by Oracle is one of the top ERP systems that have the capability to handle procurement, finances, CRM, HR, e-commerce, and much more. Used by 40,000+ organisations around the world, this cloud ERP software can easily streamline multiple front-end and back-end processes. This allows your business to reduce manual labor which then can be used for driving growth. It also comes with built-in business intelligence which enables you to have meaningful insights crucial for making data-driven decisions. With NetSuite ERP, you can handle different tasks including accounting, fixed asset management, payment management, demand planning, inventory control, billing management, etc.
2) Oracle Fusion
Oracle Fusion Cloud ERP is another ERP software that comes packed with features necessary for end-to-end business management. Enabling you to automate core business processes, this software is ideal for business of all sizes. Designed with simplicity and scalability in mind, this ERP system can take care of multiple areas including financials, reporting, compliance, product lifecycle, risk management, planning, and so on. The modern approach used by Oracle Fusion relies on cloud technology and is ideal for reducing costs while improving productivity.
Designed to help businesses achieve efficient operational management, SAP is one of the most widely used ERP systems. Besides having the ability to integrate with different business systems, SAP comes with multiple built-in tools for managing various processes starting from HR, CRM to product lifecycle management to financial management and so on. With the help of an ERP consultant, you will be able to easily deploy it via the cloud and on-premise, Shall you decide to make more evidence-based decisions with real-time data across different business departments, SAP might be the best choice for you.
Workday is a cloud-based unified SaaS ERP software that can help you manage tasks across different departments including finance, human capital, business intelligence, analytics, and so on. Ideal for mid-sized and large companies, this ERP system helps you manage business processes and data transformation across the organisation. The financial management module in Workday unravels the opportunity for you to manage accounting and reporting. After being launched as a human capital management software, Workday added the ERP module to itself.
Sage Intacct is another cloud-based enterprise resource planning software that plays a key role in helping businesses interpret data into actionable decisions. Automating manual processes, the ERP system helps businesses achieve an average ROI of more than 250%. Ideal to be used by financial and non-financial teams, Intacct comes with a shared chart of accounts that minimise the number of manageable accounts. In addition, the platform comes with hands-off upgrades and flexibility to integrate.
ERPNext, known as the most agile ERP on the planet, is an open-source ERP platform that is widely used by different industries including services, manufacturing, education, retail, distribution, healthcare, agriculture, etc. With this open-source ERP system, you can manage multiple processes related to accounting, HR, CRM, sales, manufacturing, and so on. Coming with simple, flexible, and powerful dashboards, this ERP system enables you to manage orders, projects, assets, and orders as well. Moreover, as ERPNext is powered by a large open-source community, there are zero licensing fees associated with using this software.
Be it implementing a single source of truth across the organisation or replacing longstanding manual processes, deploying ERP will be the best way to go about it. However, businesses can make potentially costly errors if they don’t practise caution. Some of the most common errors include not gathering requirements carefully, lack of end-user engagement in the decision-making process, evaluating on-premises vs cloud ERP, and so on. That’s why it’s best to get in touch with an ERP consultant if things get too technical. NeeVista consultants have the industry knowledge and expertise to help your business set up or optimise a financial ERP and streamline financial processes.