Finance professionals are tasked with handling the day-to-day transactions that keep a business afloat. When those processes are automated, organizations can gain new efficiencies, increase accuracy, and lower overall costs.
Wondering about the benefits of ERP in financial management? Today, we’re sharing a few of the ways that ERP software can simplify and streamline this key function.
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What is the Role of ERP in Financial Management?
A finance module is the part of an ERP system that handles every aspect of a company’s accounting and financial management activities. You may also see it described as an ERP financial management system.
At the most basic level, it contains digital versions of your standard accounting records, such as:
- General ledgers
- Balance sheets
- Income statements
- Accounts receivable and payable (AR, AP)
- Cash flow statements
However, an ERP finance module is far more than a document repository. Most systems can also perform a range of other functions, including:
- Generating financial reports
- Conducting profitability analyses
- Performing revenue management
- Managing routine transactions
- Expense reporting and management
- Payroll processing
- Financial reporting
- Automating manual data entry
Unless this information is integrated with your ERP solution, your data will be siloed.
That’s why it’s important to have real-time access to key financial data. It ensures that employees in every department can make informed business decisions. This entails knowing when to purchase new materials and how your accounts are performing across the board.
How Does an ERP Finance Module Work?
An ERP finance module is designed to gather financial data across your enterprise. Then, it uses that information to generate reports for employees, vendors, partners, and customers.
The finance module within your ERP system is designed to “speak” to other core business functions within your organization. When any type of financial activity occurs in another module, it will trigger a response in the ERP finance module. This includes any activity that affects:
- Inventory management
- Materials purchasing
- Production planning
- Customer relationship management (CRM)
This business-wide collaboration illustrates how ERP financial software differs from ERP accounting software. An ERP finance module includes dedicated tools that help business leaders use financial data to inform future decisions. With these insights, they can create budgets, forecasts, and plans.
Conversely, accounting software relies mostly on current and historical data.
7 Key Features of an ERP Financial Management System
As you evaluate ERP vendors, it helps to know which ERP modules could benefit your finance department. Let’s look at a few of the top tools that you’ll find in most systems.
1. General Ledger Management
Your general ledger contains a complete and detailed record of all your company’s financial transactions. When this information is stored within your ERP system, you can access and track valuable information, such as:
- Income and expenses
- Assets and liabilities
- Capital accounts
This data is stored in one central location, making it easy for employees to obtain the up-to-date information they need.
2. Profit Tracking
It can be difficult to get a complete view of your company’s financial health. With so many resources at your disposal, you may wonder if you’re making the best use of them.
A profit tracking tool, or a profitability analysis tool, lets you clearly see where your profits originate.
You can also use it to gauge the return you’ve received on any investment you’ve made for your company. This is possible with advanced trackers that use data from incurred costs, as well as receivables, to analyze how profitable your actions and decisions are.
3. Cost Tracking
In order to track profits, you need to track costs. With an ERP financial management system, you can take a bird’s-eye view of your different cost centers. How is your business spending money and where are you focusing most of your investments?
With insights into both profits and costs, business leaders can understand the specific changes they need to make to swing the pendulum in the right direction. They can analyze the best next move based on their current and projected data, as well as the current competitive environment.
4. Accounts Payable (AP) and Accounts Receivable (AR)
By automating both AP and AR, an organization can minimize the risk of human error, track critical financial activities, and simplify transactions.
For instance, companies can use ERP software to automate their collection process, which makes it easier for customers to pay on time and in full.
At the same time, users can access the AP function to clearly see how much they owe others, and when those payments are due.
5. Fixed Asset Management
How do you currently track and manage all the fixed assets your company owns? This can be a cumbersome task, especially for large companies.
ERP financial management software helps users keep track of their equipment, computer hardware, vehicles, and more. With this knowledge, they can keep track of how those assets depreciate over time.
They can also track how they’re using those assets and how much they’re spending to maintain and upkeep them.
6. Risk Management
There can be both known and unknown risks to an organization’s financial stability.
Obvious liabilities include late or missing payments, which can affect your cash reserves.
Then, there are less-obvious risks that can affect the security, compliance, and reputation of your company.
An ERP finance module can help you forecast, analyze, and manage these issues before they materially disrupt your business. This allows you to take a proactive approach that strengthens financial and operational stability.
7. Financial Reporting
While most financial reports are reserved for internal use, some companies may need to generate them for external partners and regulatory bodies. In these cases, it helps to have in-depth reporting.
Advanced ERP finance modules use machine learning and business intelligence (BI) to give users an in-depth look into every facet of their financial performance. These findings are made easy to understand via graphical tools that illustrate details such as actual sales, projected sales, and recommended next steps.
Leverage ERP in Financial Management
The value of ERP in financial management cannot be overstated. This powerful module can help you regain control of your company’s financial health, one report at a time.
An ERP implementation can help you automate manual processes, integrate financial data with other business systems, and create robust reports. However, it all starts with a careful ERP selection process. Our team of ERP consultants can help you navigate software selection while focusing on your business needs and ensuring organizational alignment. Contact us below for a free consultation.