Accounting is a mainstay core function of any business, for strong financial management, taxation, payroll and strategic planning. With an abundance of SaaS solutions available, businesses have a choice; to implement a dedicated accounting system to manage their financial processes, or to opt for a more rounded ERP solution.
After all, an ERP’s accounting features are seen as the most critical ERP function by 89% of decision-makers.
Most businesses start with an accounts package for payroll and expense management. But as they grow they soon find it hard to link siloed finance information with sales, production, marketing, supply chain, and returns.
Depending on your needs, some accounting software providers offer an ERP that creates a direct upgrade path. For others, choosing a new ERP can have many advantages that outweigh remaining with your original provider. ERP software is a relatively modern cross-business solution to link all that data.
So, with ERPs taking over more finance features across departments, does a company need an ERP solution, an accounts package, or both?
That’s a question that many operations managers, IT and business leaders ask when considering adopting new software. Or if they plan to upgrade legacy applications (many firms still use spreadsheets for accounting), or when a business is looking to implement an ERP to unify corporate reporting. Of course, there are advantages and disadvantages to both systems:
ERP Accounting Pros | ERP Accounting Cons |
|---|---|
Covers the whole business and its growing data footprint | Requires leadership buy-in and training across the business |
Absorbs data from multiple applications | Complex adoptions can take months or longer, and not all succeed |
Accessible by users across the company | Can be challenging to set up and integrate other applications |
Cloud ERPs are always up to date and offer new features | |
AI and analytics will prove invaluable for smart reporting |
Accounting Software Pros | Accounting Software Cons |
|---|---|
Easy to setup and start for smaller businesses with limited finance expertise | Typically limited to a few users |
An inexpensive solution to one of the most pressing business needs | Reports are purely financial in nature |
Provides a complete view over finance-based transactions | Finding answers to accounting questions can take time |
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What Are the Differences Between ERP and Accounting Software?
The key difference between an ERP and accounting software is the scope across the business that the ERP application provides. A traditional accounts package typically only gives fixed-point insights into budget management, sending and receiving invoices, paying and tracking expenses, and reconciling payments at the end of a period.
ERP Software Features | Accounting Software Features |
|---|---|
Financial management and reporting | Financial reporting |
Supply chain management (including standard accounting features) | General ledger |
Inventory management | Accounts payable and receivable |
Customer relationship management | Expense tracking |
Payroll and taxation | |
A centralised view of the business | Bank reconciliation |
Integration tools to migrate data | |
High-value reporting and analytics tools |
Adopting an ERP can extend and integrate that information across departments, branches and divisions. An ERP makes key finance data live and accessible to a range of key roles within the company, improving clarity.
Reporting becomes more timely and related to detailed business processes, not just a product or department. All of which creates more detailed insights that are easier to understand business performance from.
These insights enable the accounts team to track financial data as it flows across the business. While leaders can identify growth areas, and high-cost departments and adapt the business with a focus on growth.
The broader benefits of an ERP are the integration of data from multiple areas of the business, including production, sales and supply chains, offering greater operational flexibility and insights. Linking finance to a bill of materials, and suppliers and meeting other governance and compliance needs boost business performance.
Finally, ERPs typically come with user-friendly, accessible, interfaces enabling a broader workforce to access and use them. While accounts software is also evolving, ERPs are closer to the world of consumer-like interfaces.
Why Businesses Choose Either ERP or Accounting Software
The first people to consider an ERP are often accountants – 23% of employees from finance and accounting teams push for ERP Software adoption alongside IT department employees. They will have a clear understanding of the broader financial impact of a better, wider, view of capital and revenue across business processes.
With a finance-led approach to ERP adoption, there is likely greater business buy-in and there are many accounts-focused ERPs on the market.
For smaller organisations looking to keep the lights on, accounting software provides a quick-to-adopt and easy-to-use solution for balancing the books without unnecessary complexity.
Reasons to choose an ERP:
- Your business is growing and leaders require a broader view of financial data
- Teams need access to data for insights to drive product and market growth
- Your business is a collection of siloed teams with no centralised data source
Reasons to choose accounting software:
- You do not require the functions of, or have the organisation to support, a fully-fledged ERP
- Budget and other constraints limit your software adoption options
- You need to get a grip on your accounts in a short time
Successful Examples of Businesses Using ERP For Accounting Processes
ERP is typically the domain of manufacturing, distribution and industrial services business. But seen wide adoption across professional services, healthcare and other sectors. With a keen eye on cost, they are more likely to focus on running their accounts through the ERP rather than using discrete applications.
Advanced ERP features that larger firms might require include streamlining of audits, improved audit trails, management of joint venture initiatives and financing, and insights into high-volume or high-risk accounts.
As for proven results, one business using QuickBooks and a third-party payroll provider, found that it was nearly impossible to keep accurate time records and reconcile payroll with general ledger accounts. The business turned to ERP to manage its accounting and payroll processes, reducing payroll processing time by 84% and balancing accounts faster.
In another case, Noble Biomaterials adopted an ERP “after the company experienced significant growth. Initially, the motivation was optimizing their financial and accounting operations, but eventually, management and IT teams also wanted one source of truth to support company-wide processes”
Other use cases of an ERP include coping with changing business legislation and new technology that will impact accounting. Cloud ERPs feature the latest AI and machine learning technology to generate better insights based on business data. And, as Gartner points out, “By 2026, 30% of enterprises will rely on their ERP applications to enable environmental, social and governance (ESG) reporting.” All features that will trickle down to smaller businesses in years to come.
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How Automation Tech Will Improve an ERP’s Financial Processes
All businesses that are looking to automate or reduce the volume of manual processes will investigate ERPs. Most find that giving managers and workers access to smarter, clearer informational tools to perform more high-value tasks is a compelling use case.
This approach can also apply to accounts where many still use manual processes for growing volumes of work that will become unsustainable. Deploying an ERP will also benefit accounts, by simplifying tasks like accounts receivable and payable, while improving cash flow and management.
On the horizon, Blockchain is a transformative ledger technology that will likely impact accounts in the coming years. Blockchain improves the security and reliability of transactions but still requires verification. As business becomes more automated, blockchains and digital assets/finance will increasingly come to the fore to speed up transactions and increase security.
Gartner recently explained how CFOs will increasingly rely on “inhuman accountants” using AI in ERPs to detect fraud and help auditors spot unusual transactions.
The Risks of Performing Financial Tasks Within ERP Systems
Any type of business application whether on-premise or in the cloud is constantly under threat. That doesn’t just mean hackers, but every business should have a full range of protection services from firewalls to application-level and user security to defend its data.
Moving account data to the cloud potentially means more people might see it or share data. Ensuring only those with sufficient privileges can access it, and certainly, only higher-level authorities can change content is vital.
Can A Business Use Both ERP and Accounting Systems?
One reason that a business might need to run both types of software is that one could be compatible with generally accepted accounting practices (GAAP). This choice makes it easier to certify and present accounts to auditors.
Some businesses that work in regulated markets such as banking and government might also have to report in a particular manner that requires accounting software over an ERP, although modern ERP software should meet all GAAP or International Financial Reporting Standards (IFRS) reporting needs.
Overall, there are good reasons for the use of both. But as a business grows, risking a disconnect between accounts and the rest of the organisation can put a company at a competitive disadvantage.
FAQs
What are the Functions of ERP Accounting & Finance Modules?
Each ERP, especially those with a vertical or market focus, offer specific and general features to support users. The typical features of an ERP’s finance module include:
- General Ledger
- Accounts Payable and Receivable
- Asset and Cash Management
- Financial Reporting and Budgeting
These and additional features support the finance team’s bookkeeping and financial management efforts. When linked to the rest of the ERP, they help the broader business keep accurate financial records, identify investment issues and let leaders make better-informed business decisions.