What is an ERP System in Accounting?

An ERP (Enterprise Resource Planning) system in accounting is a comprehensive business management system that integrates financial management with other business processes like CRM, manufacturing, human resources, purchasing, and supply chain management.

It provides centralised financial data management, eliminates double data entry, and offers better cost controls. Key benefits include:

• Efficiency in financial and accounting processes
• Ability to track spending and future demand
• Automated transactions from purchase orders to invoices
• Detailed financial analytics and reporting
• Improved audit trails and security measures

A comprehensive ERP system has a full accounting package built-in, eliminating the need for separate accounting software packages. It supports financial operations by providing real-time insights, helping businesses make more informed decisions about their financial performance.

ERP software in financial management is a continuation of accounting specific software that brings together operations and sales into one integrated system.

Specifically, it includes:

• Financial forecasting
• Quotes & sales information
• Operational costs
• Accounts payable & accounts receivable
• Purchasing & material costs
• Invoicing
• Payroll
• Budget vs actual comparisons

The key driver is having all business processes and financial information in one system, which eliminates double data entry, reduces inefficiencies, and provides better controls across the organisation. It allows businesses to track and manage finance and accounting processes more comprehensively than traditional standalone accounting software.

The significance of ERP software in financial operations is having everything in one place. Previously business would have disconnected systems with potential inconsistencies arising.

 With an ERP, you get:

• Financial controls, checks and balances
• Efficiency in invoice processing & purchasing
• Easy financial reporting

For example, if a purchasing officer raises a purchase order in the ERP system, it will:

1. Communicate the order has been made
2. Allocate the purchase to a specific area or project.
3. Match it to the supplier's invoice
4. Quickly identify if there are discrepancies

Without an ERP, this would involve considerable inefficiencies such as taking an invoice, searching for a matching purchase order, and going to find the purchasing officer to verify details. ERP software eliminates these unnecessary steps, making financial operations smoother and more transparent.

Centralised financial data management is all about integration and efficiency ensuring financial transactions flow seamlessly through the system.

When the purchasing officer raises the purchase order, the ERP system easily tracks the order through multiple stages: supplier invoice is automatically matched to purchase order, when goods are received inventory is automatically updated, the goods are allocated to a job or project and material costs noted.

This eliminates double data entry and information blindness and ensures everything matches up with a smooth, integrated flow of financial information across the entire business.

Improved cash flow management is about watching your spend, but with much greater insight. A pure accounting package typically can't provide what ERP software can, which is forecasting for future demand.

ERP systems optimise cash flow by providing real time visibility in the company's financial health through analysis of complex financial data. 

Finance teams can access information together to make better financial decisions, including:

• Capacity planning
• Inventory holding levels and costs
• Sales projections
• Operational costs
• Material costs fluctuations

The real value is knowing what's ahead and being ready for it. Instead of being reactive, you can predict future spending and spot possible liquidity challenges.

The system essentially gives you a more comprehensive view of your financial transactions, allowing you to make more informed decisions about spending, investments, and resource allocation.

Automated accounting tasks are about creating efficiency by letting the system do the heavy lifting. When a purchase order is raised, the ERP system automatically tracks it through to receipt of goods and then into accounts payable, matching it against the supplier's invoice.

On the sales side, it works the same way - a sales order becomes a work order, and then eventually a delivery, which then automatically generates a customer invoice.

This approach reduces fraud, makes processes easier, and eliminates the need for manual data entry.

Financial data analysis and reporting in an ERP system is about understanding where you're making money - and where you're not. A key concept is cost accounting, which goes beyond a balance sheet or profit and loss statement.

ERP financial reporting allow you to drill down into the profitability of individual orders and jobs. While you may be making an overall profit, an ERP allows you to see which product lines are profitable and which customers generate the most revenue.

This allows businesses to make decisions about where business growth opportunities are, how to best optimise cash flow and make strategic changes in business operations. 

The general ledger is the core financial control in an ERP system. It tracks critical financial data like the value of machinery, work in progress, inventory, business loans, shareholder investments, and other financial obligations.

Accounting and financial management within an ERP goes beyond production-related activities. The general ledger ties everything together, providing a comprehensive view of a business's financial health, with legal implications for both private and public companies.

A full accounting system within a cloud based ERP system should handle most standard business financial requirements. However, some highly specialised financial calculations outside of production-related activities, such as detailed asset depreciation or complex shareholder investment tracking, might still require additional financial expertise or specialised financial software.

Accounts payable in an ERP system manages what the business owes to suppliers or vendors. It covers the entire purchasing lifecycle - tracking invoices, changes, production costs, and managing payments.

The system isn't just about recording invoices. It handles the complexities of payment management, including different payment schedules and end-of-month payment runs. You can manage credits when suppliers invoice incorrectly or when goods are returned, creating an accurate view of your financial obligations.

The value is in the integration. When a purchase order is raised, the ERP system can track it through to invoice receipt, allowing you to easily verify if the invoice matches the original order. This reduces the need for manual verification, making the process more efficient.

Accounts Receivable is essentially the customer-side equivalent of Accounts Payable. It manages everything the business has invoiced to its customers, tracking payments, and sometimes chasing those payments.

The system handles the entire customer invoicing lifecycle, including managing payments and tracking the aging of debts owed to the business. Just like with Accounts Payable, the Accounts Receivable component allows you to manage credits if something goes wrong - such as incorrect invoicing or issues with supplied goods.

Cash management is fundamentally about visibility and control. The ERP system provides real-time insights, helping you track incoming and outgoing funds more effectively.

For many small to medium businesses, it's a daily game of getting customers to pay so you can, in turn, pay your own suppliers. The ERP system provides visibility and control over this critical cash flow process, making it easier to manage customer payments and maintain financial stability.

This allows you to manage your cash flow strategically, ensuring you have the funds to meet your financial obligations.

ERP software offers economies of scale. Instead of paying for multiple separate systems like a scheduling application, a HR application, an inventory application, and accounting software, you're benefiting from everything being on a single platform.

With an ERP, you're also saving on implementation and integration costs. You're avoiding the need to configure different systems to talk to each other, which can be expensive and complex. The financial advantages come from having a single, comprehensive system that covers multiple business functions.

While the upfront cost might seem higher, you're saving money in the long run. You're reducing support costs, implementation expenses, and the overhead of managing multiple software packages.

The advantage of staff training and implementation in an ERP is that not everyone needs to be trained on the entire system. Instead, people can be trained based on their specific functionality - sales staff on CRM and quoting, production team on scheduling and inventory, finance on accounting modules.

Another benefit is that everyone starts speaking a common language. Different accounting software might call things by different names - like "suppliers" versus "vendors". An ERP eliminates this, ensuring consistent communication and greater understanding across different departments.

Implementation becomes more efficient because you're not dealing with multiple systems and interfaces. Training becomes more focused, and ultimately less overwhelming for staff, leading to faster adoption and better overall system integration.

An ERP system in finance is one of the easiest and quickest parts to implement. As financial systems follow generally accepted accounting principles (GAAP), the fundamentals are essentially the same worldwide.

Deployment time is condensed because everything is on the same platform, with common terminology and interfaces. An invoice is an invoice, a payment is a payment, regardless of the system.

Typically, implementation can take anywhere from one to three months. It's much faster than trying to integrate multiple systems and accounting software, each requiring separate training and configuration.

An ERP system transforms financial insights from a simple reporting tool to a strategic decision-making platform. Where traditional accounting software just shows numbers, ERP software provides a comprehensive view of financial performance.

The benefit of ERP software over accounting software is the insight into financial performance. Instead of seeing a profit percentage, you can explore why that percentage changes. The ERP system allows you to track which customers, product lines, or transactions are truly driving your business's financial health.

ERP software turns financial data into actionable business intelligence, giving business owners the insights to make better decisions about their business operations.

ERP systems provide automation and compliance by implementing strict security and role-based access to financial functions. By automating compliance checks and restricting sensitive financial functions to specific roles, ERP systems reduce human error, increases transparency, and ensure every financial action is traceable and verifiable.

This approach goes beyond traditional accounting software by embedding compliance directly into the transaction process. This ensures financial integrity, reduces fraud, and provides a clear, traceable record of all financial transactions.

ECI's Enterprise Resource Planning (ERP) accounting software integrates financials with multiple business functions. This includes CRM, operations, human resources, and supply chain. This provides cost insights that allow businesses to track the profitability of individual orders and jobs.

Any business that provides goods or services to the public or in a B2B situation will benefit from an ERP system, particularly businesses that require better financial management and business insights.

Our ERP systems can be implemented in as little as two months, depending on the complexity of your business requirements. Often the finance module is one of the easiest and quickest to implement, typically taking between one to three months.