ERP systems bring together a variety of business processes and facilitate the movement of data between them, and finances are the core of those business processes. An ERP finance module supplies all of the other modules with the necessary data to carry their jobs out.
Without financial information in your ERP system, your program would operate within a vacuum. After all, how can you effectively conduct more advanced processes, such as automatic reordering points, when you don’t know how much money you have available to spend on materials?
ERP financial systems work with every department in your company, allowing you to make sound decisions and increase productivity.
What Is an ERP Finance Module?
At the most general level, an ERP financial module is a software program that gathers financial data and then generates reports. It allows you to communicate financial information more clearly to external partners such as vendors and your customers when needed. You can accomplish this through functions such as accounts payable, accounts receivable, general ledger, budgeting and more.
Read on to learn about some of the most basic and popular aspects of ERP financial management software that you might consider in your ERP solution.
Top ERP Finance Module Features
1. Profit Tracking
A primary function of ERP financial management modules is profit tracking. The profit tracker will help provide a bird’s-eye view of how the business is using its financial resources, and of its overall financial health. Tracking your profits will show you where the majority of profits are coming from, while also determining the return on investment for any buy.
The tracker uses the incurred costs and any receivables to calculate how much your organization is profiting from your efforts. Some programs will forecast future profit based on historical expense and sales data.
On the other side of the coin, financial management software can also help companies track costs. This involves evaluating individual cost centers, looking at procurement from the top or otherwise evaluating how the business is spending money.
The desired result of these types of tools is to make changes that will increase profits for a business. Think of financial management software as providing a road map for business leaders who understand the best moves in their current business environments.
2. Ledger Management
Ledger management is another fundamental function of ERP financial systems. A general ledger provides a thorough record of all financial transactions. It integrates with all of your other ERP modules, such as inventory management or customer relationship management.
Entries are typically made directly into the general ledger (GL), but your system may allow you to make entries anywhere within the application. Either way, you’ll be able to view your entries in one central location. You can keep track of a variety of things; for example, assets, liabilities, capital accounts, income and expenses.
Having all of your financial data in one place can make filing tax returns more manageable and help you stay on top of spending. You can quickly identify any odd transactions or fraud, and some systems will automatically notify you of these instances.
The GL provides excellent visibility in your financial department and shows you the bigger picture. It’s the starting point for creating financial statements that are integral to evaluating your financial health.
3. Accounts Payable
Accounts payable will manage all of the funds your company owes to your vendors and other creditors. An accounts payable feature integrates your payable data with your purchasing system so you can take control of your cash flows.
Automating accounts payable will save you money and time on labor hours as well as avoid human errors. AP automation saves you $16 per invoice, or more, depending on the size of your company. The system will be able to quickly process large amounts of invoices and other financial transactions between your company and vendors. Some applications offer document capture, also known as imaging features, which will convert paper invoices into electronic documents.
In short, an accounts payable system will let the user know how much they owe and when it’s due, so you’ll never be late on a payment again. Sounds nice, right?
4. Accounts Receivable
Accounts receivable allows your business to manage all of the funds customers owe them. It will track customer payments as well as manage invoices and cash.
Some systems offer a portal for your customers where they can make payments or access invoices. You can automate tasks such as sending payment reminders or account statements and generating recurring invoices.
AR automation speeds up the collection process and will boost customer relationships because ease of payment makes your organization more accessible. The ease of payment produces happy, returning customers.
5. Fixed Asset Management
This solution tracks and manages all of your company’s tangible assets, such as manufacturing equipment, computers, company cars and office space. It will take into account depreciation calculations, compliance requirements and tax implications.
Asset management gives your organization better visibility in terms of utilization, costs and maintenance. For example, keeping track of the depreciation of your assets can help you forecast expenditures and create budgets. If you are aware that your equipment is aging and may need maintenance soon, you can plan accordingly for those payments.
Tracking your assets will prevent you from paying taxes on items that you have eliminated or replaced, which is an easy mistake to make while trying to maintain your own records. The tool will also pick up on opportunities for sales tax savings — some jurisdictions give tax breaks, or exemptions, to specific industries.
6. Risk Management
A great deal of business is ultimately about risk, and business leaders want to know that their organization is protected. Risk management tools can predict, analyze and manage crises.
These situations can range anywhere from financial issues to even natural disasters. Other potential calamities that can be managed with risk management solutions could be related to security, legal liabilities, compliance or reputational risks.
Compliance regulations can be challenging to keep track of because they are ever-changing. In a food and beverage manufacturing setting, the risk management tool could notify you in the event of contamination or any other issues in the process. From a financial point of view, it will be monitoring any money flowing in and out of your business. Your risk management tool can ensure that you have enough cash reserves to cover accounts payable if a customer misses a payment; this manages credit risk.
Analytics provide real-time access to financial data, which is crucial for maintaining your finances. The visibility helps you make data-driven predictions and decisions concerning your company’s finances.
On a basic level, reporting and analytics will show you where revenue is being generated and where it’s not being generated. But the dashboard can do so much more, such as display your sales, expected sales, expenses and many other financial components. Typically, the dashboard is customizable, so you can choose which categories you would like to see. Data is shown in graph format which allows you to quickly understand the financial health of your company at that exact moment.
8. Multi-Currency Management
If you have global clients, the ability to manage multiple currencies is critical. Multi-currency management automates the process of both buying and selling in foreign currencies. Currency conversion capabilities allow you to complete transactions in numerous different currencies.
9. Tax Management
Tax management solutions store system taxation settings and provide tax audit and tax reporting functions. Taxation settings should be used across the system to provide a consistent collection of sales and VAT taxes.
Perhaps your tax management feature will complete the tedious task of determining sales tax jurisdictions of ship-to addresses or use prebuilt tax intelligence to process sales transactions in compliance with proper regulations. The capabilities of your tax management depend on which system you purchase, and the system you purchase will depend on the needs of your company. Either way, employing tax management within your organization is a great way to avoid spending time on mundane tasks.
Read our article about the best tax management software for inspiration.
What Are the Benefits of an ERP Financial Module?
The financial module is the heart of your ERP software system. Read on for a list of benefits.
- Improved productivity: Productivity will immediately increase once you automate mundane and time-wasting tasks.
- Complete financial transparency: The analytics dashboard and GL will provide authorized users with everything they need to know about your organization’s financials.
- Informed planning and budgeting: The analytics and reporting function will allow you to forecast costs and potential revenue, then design your budgets accordingly.
- Real-time financial monitoring: From a strange transaction to a spike in sales, you’ll always know what is going on within your financial sector at that exact moment.
- Minimized human error: Accounting mistakes such as data entry errors are common but can be detected and avoided with the help of ERP financial software.
- Organization and tracking of electronic invoices and financial documents: The digital format prevents misplacing or losing documents, and they will automatically be filed into the proper place.
- Mobility: If you elect a cloud-based system, you’ll be able to access your financial tool anywhere, anytime.
- No missed payments: Accounts payable will notify you of upcoming payments, or you could choose to have them taken out automatically.
- Integration: Financial ERP modules integrate with other business systems, such as CRM, which will provide sales numbers and marketing budgets.
- Centralization: The GL is the main hub; you can access all of your company’s financial information in one place.
Without a financial module, an ERP system wouldn’t work the way it is intended to work. The features outlined in this article are the standard and popular ones; you can always add more advanced capabilities if you prefer. Remember that the key to finding the right software system is determining what your organization needs and aligning them with the features of your software system.
Download our free requirements template to help determine which financial ERP features your company needs.
Did we miss an ERP financial feature that you think is essential? Let us know in the comments below.