ERP Finance: The Added Value an ERP System Offers in Your Financial Management

1. How can finances be mapped in the ERP system?
2. This should be considered in an ERP software with financial system
3. Advantages of an ERP system with finance and accounting
4. Important functions of finance modules in the ERP system
5. Tool-Tips: ERP Systems with Finance Module
6. Conclusion

Our guest author David Wagemann explains the advantages and functions of an ERP finance module in this article and why it should be at the top of the management agenda. He also provides you with a guide to choosing powerful ERP systems.

Financial accounting is a mandatory task for all companies. The legislator requires proper accounting and the preparation of annual financial statements and tax returns. This is not really sexy, but it means that all business transactions flow together in the financial system of the ERP system. This makes the current operating result and other key figures available at the push of a button and forms the basis for far-reaching entrepreneurial decisions. This is not a "nice to have", but a "must have" for all future-oriented companies.

How can finances be mapped in the ERP system?

Before we delve into the details of the advantages and functions of ERP Finance Software, there is one essential consideration that has a crucial influence on the selection of the suitable ERP system for a company. And at the same time this has a big impact on the performance of the financial system. In every initial consultation with our customers, we clarify this from the outset: Is the accounting done in-house or externally and should it stay that way? And in connection with this the question whether the ERP financial accounting should be seamlessly integrated into the ERP software or may also be connected as a separate solution via interface to the ERP system. Not all ERP systems offer a comprehensive, integrated finance module. However, interfaces to accounting software like DATEV are now standard. Little hint: For beginners in the field of ERP, the contribution, how does an ERP system work? 

This should be considered in an ERP software with financial system

Advantage of a fully integrated finance module:

If the financial accounting is depicted via a module directly in the ERP system, it accesses the central database into which all other modules feed their data. Thus, for example, an incoming invoice in the finance module is automatically reconciled and posted with the goods receipt (warehouse module) and the purchase order (purchasing module). In case of discrepancies, a manual approval workflow is started. The payment of the automatically or manually authorized invoice is then triggered on time. At the same time, the other modules can access the data in the ERP Finance module and evaluate it.

Advantage of external finance software connected to the ERP system via interface:

Most of the ERP systems that are oriented towards one or at least only a few industries offer excellent specific functionalities for their target group, but often no comprehensive ERP system accounting. The main advantage of these ERP solutions, where the financial accounting is linked to a separate software via an interface, lies in the strong industry orientation of the non-finance part.

Therefore, it is necessary to weigh up whether the advantages of the seamless integration of a powerful finance module outweigh the industry-specific orientation of an ERP system with externally connected finance software via interface.

TIP: As part of the selection process of suitable ERP providers, this point should be very high on the priority list: Should the financial system be seamlessly integrated into the ERP software or connected to the ERP system as a separate solution via interface? Due to the importance, but unfortunately also complexity, we recommend our customers to get at least punctual external support from independent experts on this issue.

The finance module is the central point in the ERP system where the financial data of the other modules converge

Advantages of an ERP system with finance and accounting

An integrated accounting system in the ERP system offers companies the following advantages (for ERP systems in general, see also Advantages of an ERP system):

Transparency

A powerful ERP Finance System provides information about the economic situation of the company at any time and allows insight into the development of liquidity. Meaningful and reliable financial information provide various business key figures and form the basis for important entrepreneurial decisions. Without these concrete data, a company navigates almost blind. Therefore, when introducing an ERP system, the management focuses on a powerful ERP accounting system.

Productivity

The acceleration and automation of accounting activities is another not to be underestimated advantage of an ERP finance module. Ideally, it should be seamlessly integrated into the ERP software. Then, when a transaction with financial impact is triggered in any area of the company (e.g. purchasing, sales, warehouse, production, logistics), an automatic booking in ERP financial management is made. Double entries and errors are thus avoided. The automated processing of bank account statements also significantly reduces the effort in payment transactions. Processes are thus not only automated, but operations are also monitored and controlled.

Growth

Growing companies benefit from the use of a comprehensive ERP software accounting system by the simple and accelerated connection and presentation of new locations, subsidiaries or product lines.

Compliance

Annual financial statements and balance sheets must be prepared according to legal requirements. The principles of the financial authorities in the GoBD ("Principles for the proper keeping and storage of books, records and documents in electronic form and for data access") must also be implemented by every company. These are the absolute basics of an ERP system finance module, and therefore no company can avoid dealing intensively with this topic. The financial system also supports the generation of tax documents, for example in the case of advanced VAT returns and tax returns.

Important functions of finance modules in the ERP system

Generally, the different ERP systems contain a finance module in one of the following three expansion stages: Minimal, Basic or Expanded.

The functionalities in the different expansion stages of an ERP Finance Module

Expansion stage A: Minimal

Every ERP system generates financial data, even if the focus of the software is more on the production or merchandise management area. In the minimal expansion stage, however, these data are not further processed in the ERP solution itself, but transmitted via an interface to an external accounting software. As standard in this area, the interface to DATEV is to be mentioned. The software solutions in the field of accounting from DATEV are used by more than 500,000 customers, in particular accounting service providers and tax advisors.

TIP: Many small and medium-sized companies work together with tax advisors in at least some areas of finance. A DATEV interface for the export of master and booking data should therefore be included in every ERP finance module, regardless of the expansion stage of the module.

Expansion stage B: Basic

Many ERP solutions contain a finance module that provides the basic functionalities needed by all companies, regardless of the industry. For smaller companies, these are normally sufficient. These include the following functional areas:

Main Ledger

The main ledger (English "General Ledger") records all financial transactions of a company and is based on the chart of accounts. It provides the data base for financial reports, tax returns and annual financial statements.

Debtors

The debtor accounting manages the receivables from deliveries and services to customers. Invoicing and the matching of payments received and invoices are among the central tasks. For this purpose, open items are monitored and also payment reminders and reminders are generated. A multi-stage dunning system and the blocking of insolvent debtors round off the functionality.

Creditors

The liabilities to suppliers are managed by the creditor accounting. The monitoring of open items ensures timely payments, if desired taking into account discounts. Another essential element is the comparison of incoming invoices with the goods received and related orders.

Payment Transactions

Payment Transactions focus on executing payments and processing and reconciling bank account statements. A clever control of payment suggestions directly affects the company's cash flow. And a configurable, automated reconciliation of bank statements reduces the processing effort significantly. A core element are the fully integrated interfaces to common banking tools.

Reporting

The Reporting module creates balance sheets and profit and loss statements (P&L). In addition, total and balance lists are generated for the Main Ledger, Debtors and Creditors modules. These reports should be "out-of-the-box", i.e. without the need for manual configuration or parameterization by the users.

Expansion stage C: Expanded

The SME sector and larger companies require expanded functionalities in the finance area, which are fully integrated in the ERP system. The following functionalities are covered by a powerful finance module:

Budget

A modern ERP Finance and Accounting system supports you in budget planning individually according to the needs of your company. Planned and actual figures are brought together in one place, so that the degree of fulfillment and deviations are visible in real time. Different budgets can be managed for the same period.

Liquidity

The Liquidity or Cash Flow module is used to create liquidity forecasts (cash flow forecast) and provides a precise overview of the company's current liquidity situation and forecast at all times. The aim is to ensure the company's solvency and to recognize changes in liquidity requirements at an early stage.

Assets

The main task of asset accounting lies in the management of fixed assets and the automated posting of depreciations. For this purpose, different types of depreciations are supported. In addition, the associated maintenance costs and insurances are monitored for each fixed asset.

Payroll

The calculation of the monthly salary of the employees in the company is realized via the payroll. In this module, strict attention is paid to implementing the legal, tax and social security law requirements. Due to the complexity of the requirements and the need for frequent updates to adapt to legal framework conditions, a fully comprehensive payroll is only integrated in a few ERP systems.

TIP: We advise smaller companies in particular to closely examine what disadvantages the use of an external payroll would have, which is connected to the ERP finance module via an interface. Because if a fully integrated payroll accounting is required, this considerably narrows down the circle of suitable ERP systems.

Cost Accounting

Cost accounting is used for planning and controlling the costs and revenues of the company. In contrast to financial accounting, which strictly adheres to legal regulations and is based on the chart of accounts, internal allocations and assignments to cost centers, cost carriers and cost types can be made individually according to the needs of the company in cost accounting. This allows questions to be answered such as: How high is the contribution margin of the various product lines? What costs are incurred by the individual departments and profit centers? As a result, the management has important key figures available for strategic decisions.

Consolidation

The consolidation module depicts the aggregation of postings from several clients into a consolidated result. In doing so, intercompany transactions are eliminated and adjustments are made in the presentation of certain booking processes in order to generate meaningful and legally compliant consolidated reports.

Advanced Reporting

In addition to the basic reports such as balance sheet and P&L, advanced reporting enables the flexible creation of individual financial reports. In doing so, data from several clients and bookings in foreign currencies can be merged, among other things.

Tool-Tips: ERP Systems with Finance Module

Since the requirements for the financial system depend crucially on the company size, we have selected some ERP systems for smaller and larger companies. The SME sector can choose from both camps depending on the complexity of the requirements:

For smaller companies:

Sage 100

SAP Business One

Uniconta

TOPIX

For larger companies:

SAP Business ByDesign

SAP S/4HANA Cloud, public edition

Epicor ERP

Microsoft Dynamics 365 Business Central

Oracle Cloud ERP

Detailed information can be found under ERP Systems Software & Tools Comparison. If you want to see all tools from Sage or SAP, then take a look at our Sage-Overview or at our SAP-Overview.

Conclusion

A powerful ERP financial system is a 'must-have' for all future-oriented companies. On the one hand, the legal requirements such as annual financial statements and tax returns must be met. On the other hand, it is not an exaggeration to say that it forms the basis for business success. Bookings and payments are efficiently planned and controlled. Financial reports and analyses provide the business basis for far-reaching, strategic decisions. Therefore, in the selection process of suitable ERP systems, many companies rely on the expertise of independent external consultants, especially in the finance area.