ERP Accounting System

When evaluating ERP (Enterprise Resource Planning) Accounting software, distribution and wholesale businesses need clarity regarding ERP accounting software features and its concepts.
● What is ERP accounting software?
● What is ERP in accounting?

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Definition of ERP Accounting

An ERP Accounting Software is one that automates the tasks performed by various users in the finance department of a company. These users could be accounts clerks, accountants or managers. The software could either be installed on Cloud Servers in which case it is called Cloud ERP or ERP on Cloud.

An ERP in accounting allows you to configure the system accurately so that all the transactions are accounted for accurately and reported automatically.

ERP Accounting Software is mostly used by the Finance department. The department has three major tasks, Corporate Finance & Treasury (CF&T), Accounting and Reporting, and Financial Control.

What is ERP Accounting System - Ximple Solutions

The Finance Department has 3 Major Tasks

Corporate Finance & Treasury :

Corporate Finance handles negotiations for raising long and short-term loans and restructuring of existing loans. They negotiate with investment managers for creating and marketing debt instruments like debentures that they sell to the investing community to raise capital. They are also responsible for handling investor relations and statutory compliance and reporting.

Treasury management is the task of planning, organizing and controlling the funds flow to ensure adequate liquidity for the company. The treasury department deals with investment of surplus cash and meeting working capital requirements. It also manages the relations with banks. CF&T is a separate team in the finance department.

Accounting & Reporting :

Accounting and Reporting are the operational tasks of the finance department. These involve accounting for transactions, summarizing them, completing period end activities, posting to General Ledger, extracting key performance reports, and sharing them with the internal and external stakeholders.

Financial Control :

Cost accounting involves tasks like setting up of cost standards, tracking cost elements, analyzing variances, and reporting the cost information to the internal stakeholders.

ERP Evolution : A Brief Enterprise Resource Planning (ERP) History

The payables department handles the interaction with vendors and performs transactions like entry of invoices, vendor payments and creation of credit and debit memos. The Receivables department tracks collections from customers.

Finance department is the owner of the Fixed Assets of the Organization. It is responsible for creating, transacting, depreciating and retiring assets.

The financial control activities include setting up and tracking approval mechanisms, setting budgets and tracking variances, and setting up transactional controls like maker / checker and holds.

The transactions handled by the finance department are voluminous, complex and have potential for errors. It needs a well-designed ERP system to handle the challenges.

ERP Accounting Software : Features

A well-designed ERP Accounting system should support transaction accounting and review, period end adjustments and provisioning, period end reconciliation, month end and year end closure. The table below lists a few features that an ERP application should support.

ERP Accounting Software: Benefits

• Real-time view of financial data
• Single source of truth: Define once, use everywhere
• Ease of reporting based on different accounting standards
• Ease of month-end and year-end processing.
• Improved cash flow and reduction in working capital requirements
• Alerts and notifications enable timely action.

Accounting ERP Features Feature needed by company size Must have features
Supports the accounting standards of Country of Operation All Yes
Supports multiple accounting standards Large No
Allocations All Yes
Automatic reversals All Yes
Journal Approvals All No
Manual and Adjustment journals All Yes
Month-End Closure All Yes
Year-End Closure All Yes
Third party transactions (Vendor / customer) All Yes
Asset Tracking and Automatic Depreciation All No
Bank Transactions and Reconciliation All Yes
Generating Financial Reports All Yes
Ability to integrate with external applications All No
Multiple currency transactions All No
Currency revaluation and translation Large No
Excel upload and download All No
Transaction Drilldown All Yes
Create and Track Budgets All No
Country Localization All Yes

Top ERP Accounting Applications

An ERP for Finance should have the following applications.

General Ledger :

This is the accounting book. Finance managers can create manual journals and period end adjustment journals directly in the application. In addition, through the internal integration, applications like payables, receivables and assets (called sub-ledgers) transfer the accounting reflections of transactions to the General Ledger. The application uses the information collected by it to generate financial reports like Trial Balance, Balance Sheet, Profit and Loss and Cash Flow Statement. The application is also used to create budgets and track variances.

Payables :

Another name for this application is Vendor Ledger. This tracks the transactions entered with the Vendors including Invoices, Payments, Credit memos and Debit memos. This application also interfaces with cash management to handle vendor payments. In case of a full ERP setting, this application also ‘talks to’ Purchasing and Inventory applications for invoice matching purposes.

ERP Software Failure : Globally about 50% of ERP implementations are considered to be a failure. Here, the definition of failure is that they did not meet the expectations. Instead of improving the process efficiency, they slowed down the operations and impacted the revenues and bottom line.
ERP Software Failure : Globally about 50% of ERP implementations are considered to be a failure. Here, the definition of failure is that they did not meet the expectations. Instead of improving the process efficiency, they slowed down the operations and impacted the revenues and bottom line.

Receivables :

This application is also known as Customer Ledger. This application tracks Customer Invoices, Collections / receipts and commissions for Sales Person. This application also interfaces with cash management to handle the customer receipts. In a full ERP setting, this application also talks to the Shipping application for shipment information (for revenue recognition) and Inventory application for COGS information.

Cash Management:

This application handles cash transactions including payments and receipts. This also handles reconciliation between bank statement and cash book.

Fixed Assets:

This application owns the fixed assets of the organization and is responsible for asset creation, depreciation and retirements. The application shares the accounting reflections of these transactions with the General Ledger. This is a standalone application and is optional

Treasury (for CF & T):

This application manages the treasury operations of an organization including loans, advances and investments. This is an optional application.

Evaluating ERP Software to support the needs of Finance & Accounting departments

Business factors

  • Maps to your business size : There are applications with a number of features that may not be required for a company of your size. Going for such applications will be unnecessary and expensive.
  • Scalable : There are two aspects to scalability. The application should handle a sudden surge in demand. In addition, the application should handle the potential long-term growth of the business.
  • Extensible to other business areas like Purchasing, SCM and Inventory : As your business grows, the current ERP system should be able to extend to upstream applications.
  • Scalable approval and notification workflows : As the business grows, the approval requirements will become complex. The approval workflows should scale to handle the complexity.
  • Application meets the key requirements of your company : This is the most important factor. Many of the ERPs are just account books. To call an application ERP, it must have integration between different applications and 360-degree transaction visibility.
  • Localization support : This is one of the key drivers of buying ERP. Any ERP system should be able to handle Localization in a simple and intuitive manner.
  • Statutory Compliance support : An ERP application should be easily able to integrate with Government portals and easily submit month-end compliance reports.
ERP Software Failure : Globally about 50% of ERP implementations are considered to be a failure. Here, the definition of failure is that they did not meet the expectations. Instead of improving the process efficiency, they slowed down the operations and impacted the revenues and bottom line.

Support factors

Availability of local support : This is a nice to have feature. With the advancement in technology and remote working, onsite / near site support is not a mandatory requirement. Such rigid requirements may prevent you from effectively expanding to other locations.

People factors

Is the team IT Savvy? A team of young and IT savvy people will more readily embrace technology. Their technology learning curve will be shorter.

Does the team feel the need for an ERP? If the team does not feel the need for ERP, the adoption may be slow. It is important to communicate the need for ERP to the team and ensure their buy-in.

Technical Factors

Security and access control : ERP Application should support role-based access to the users. For example, an invoice entry user should not have access to making payments.

Reporting flexibility : The application should have both parameterizable standard reports and flexibility to develop custom reports in the required formats

Holds : These are transaction controls used to handle uncertainties. For example, when a vendor disputes a debit note, that transaction is put on hold and remains there until the dispute is resolved. The ERP System should support holds.

ERP Software Failure : Globally about 50% of ERP implementations are considered to be a failure. Here, the definition of failure is that they did not meet the expectations. Instead of improving the process efficiency, they slowed down the operations and impacted the revenues and bottom line.

Other factors

  • Modular : Organizations with tight budgets should be able to install the applications as modules. A new application should have plug and play integration with existing applications.
  • Great user experience : This includes requirements like pleasant look and feel, intuitive navigation, configurable themes the application should have the ability to automatically save transactions, and the alerts and notifications should be actionable
  • Value for money : ERP Application should provide the best value for money. Organizations should have clear criteria for identifying value. Quick payback period is normally used to measure value for money.
  • Auditor’s recommendation : Auditor is a key stakeholder for the finance department. An auditor would have expertise in different ERP applications and will know which application is suited for a business of such type and size.

Does your ERP Software providers meet the below criteria?

• Does your ERP Software meet your Business Needs?
• Does your ERP solution aligns with company goals?
• Will ERP Software Integrate/compatible with existing systems?
• Have partner Network/Availability?
• What type of training/support options offered by the ERP Solution provider?
• Have references and recommendations from customers?
• Does your ERP provider invest in tomorrow’s technology?

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