ERP Accounting Software vs Normal Accounting System Examples
When is normal accounting software enough, and when should you adopt ERP accounting software to get a total solution?
This article will answer that question. We’ll provide some side-by-side examples of why ERP is superior to accounting tools by many metrics, and then give some brief examples of ERP systems in action.
What is an ERP system in accounting?
It is a bit confusing to talk about what an ERP system is within the larger question of accounting systems. Many people ask: what is ERP system in an accounting context? But that’s a bit backwards.
This is because it is in fact the other way around. Accounting systems form a part of ERP software. ERP systems are made up of many different modules, and accounting is just one of those elements of a complete ERP software. As such, looking for a specific ERP accounting definition can be misleading.
Other business processes that make up part of an ERP solution include the following. ERPs include modules for procurement, which is for purchasing and acquiring resources like materials a company needs for its production.
Another important part of an ERP solution is project management features, which are useful for planning the scope, budget and timeframe of a project and keeping project teams collaborating efficiently in real time.
Supply chain management is another one of ERP software’s business functions, which is important for staying on top of all the moving parts in your operation regarding inputs, transport and shipping, as well as inventory management like storage and warehouse management.
One more crucial element of an ERP software that is not accounting is risk management and compliance tools.
ERPs can also include the basic tools of a CRM solution, or customer relationship management, to manage contacts and grow one’s network, as well as help with support and sales. The difference between ERP and CRM goes deeper still, however (we have an article covering the topic in-depth).
All in all, accounting is a huge and necessary part of all top ERP systems, but it is hardly the only module that matters.
The best enterprise accounting software slots accounting into a much broader context. So when you hear people talk about what role ERP plays within accounting, you should correct that statement by saying it is the other way around.
What does ERP stand for in accounting?
The acronym ERP stands for enterprise resource planning. It is for enterprise operations because this kind of software is not too commonly used in small businesses, let alone in startups. As one’s business operations grow, however, it is wise to adopt an ERP software system.
What is ERP accounting software?
An ERP accounting software package is a module of tools and features to manage a company’s accounting as part of a larger set of modules including things like procurement, CRM, human resources, supply chain management and more.
Apps in this category are geared towards handling the important business and financial operations. Some examples of these activities are creating and doing pricing and invoicing, running purchase orders, accounts payable, income statements, financial reports, accounts receivable, cash flow balance sheet management, cash flow sales forecasting, and more.
ERP platforms are used for the business needs of more advanced financial management operations that are best suited for large businesses, multinational corporations and other enterprise-level operations.
Why are ERP accounting systems better?
Enterprise resource planning management software is superior to basic accounting software for several reasons, chief among them being that it streamlines the financial and accounting operations with the rest of a company’s production planning.
Since it acts as a holistic business management system, this kind of online accounting software leverages real-time data from across the entire operation. This helps to cut down on waste, speed up operations, and minimize resources and labor-power.
It also works to keep everyone and every department in good communication and collaboration, whether we’re talking about front-end customer facing positions or key back-office roles.
ERP vs accounting software: what’s the difference?
In this section, we will spell out the difference between basic accounting software and enterprise resource planning software solutions. After this section, we will look at some ERP examples and show how they are superior to accounting software in the right context.
Regular accounting software
Multiple modules and departments
When it comes to overall decision-making within your operation, having a system that shows you what is going on across multiple departments and business areas is crucial for making the best decisions on time. Accounting software is just one area of operations, showing you basic things like a dashboard featuring your general ledger and balance sheets.
Accounting software is just that: software for adding up and subtracting your business financials. Most common accounting software, like Quickbooks or Xero, is fine for handling the accounting of many kinds of businesses, However, there is sometimes a bit of a lack when it comes to including industry-specific features in such accounting tools.
Sales and customer support
At the risk of sounding like a broken record, accounting software offers nothing beyond accounting. And this is just fine if you run other business SaaS on the side, particularly CRM apps that can give you marketing, sales and customer support. One rarely thinks of these business modules as being necessarily connected.
Real-time data and BI
Accounting software providers are limited when it comes to the quantity and variety of data you get. You’ll see your balance sheets with your plus and minus ledgers, and you can review your cost-benefit analysis over time.
Workflows and automation
Automation is nowadays one of the most important aspects of running a business to save time, increase productivity and keep your staff morale high.
Sadly, accounting software is limited in the number and kinds of workflows you can run, for example, like doing things like automatically sending our financial reports via regularly scheduled emails.
What’s more, accounting workflows will be siloed from other business operation workflows, requiring more human-labor time spent on connecting their triggers and events.
Any ecommerce operation will surely benefit from using some simple accounting software like Quickbooks. However, ecommerce usually requires other bits of business SaaS to run, while sometimes ecommerce businesses need to remain simple in terms of their software stack.
ERP accounting systems
Multiple modules and departments
With an ERP system, you get to include this oversight of your financial data alongside other crucial elements that are part of the business lifecycle, like your employees, your inventories, your customer relationships, and even things like business forecasting.
Many ERP systems are designed to work across the board no matter what industry you are in. With that being said, it should be noted that there are many great ERP apps that do offer industry-specific tools. This is especially the case for large-scale construction operations, but also for things like running international hospitality companies, hospitals, government organizations and more.
Sales and customer support
When you run some ERP system, whether it's a cloud ERP or installed on-premise, you can access the power of fusing your accounting with basic customer relationship management tools, especially sales and customer support, with your basic financial management from accounting. Because in today’s interconnected business world, sales efforts, cash flows and customer satisfaction can never appear too far apart.
Real-time data and BI
Modern ERP solutions, like SAP or Microsoft Dynamics, are all about gathering the most and best business intelligence available from your business processes. Not only is the quantity of real-time data greater, but ERP’s BI tools can link data and help uncover deeper insights from the interconnectedness of all your departments and work activities.
Workflows and Automation
Enterprise resource planning lets users create automations and workflows that function inter-departmentally and across entire business operations. It can link things like inventory management to procurement, or risk management to project budgeting.
Any ecommerce operation that is big enough to warrant the use of an ERP software will certainly have the advantage of being able to combine very ecommerce-specific features into a single platform, including payment processing, inventory and shipping, and customer support.
ERP accounting system examples
ERP Example 1: Low inventory
An accounting ERP system is able to stay on top of inventory.
When a certain item’s quantity in a warehouse gets below a certain number, ERP accounting systems can trigger a purchase order from the procurement department to buy more of this item.
It can also put delivery a hold on the item so that no salesperson can promise to deliver it before the inventory gets restocked.
ERP Example 2: Customer complaint
Your accounting ERP software has registered several complaints from customers regarding a certain product.
The ERP can automatically suspend the product from the company website for the time being, and in the meantime send out an automated email to each customer offering them a discount on a further purchase.
It can also trigger a note to the production department to investigate why the product is faulty.
Our conclusion on ERP system accounting
So now you know that asking ERP system meaning in accounting context specifically is… a bit misleading. ERP treats accounting as another module in its big business toolkit.
Not every business SaaS subscriber will be ready to adopt a massive enterprise resource planning solution, and in many cases, standard accounting tools are just fine. Remember, great accounting software like Quickbooks is more than just a series of spreadsheets, but full of useful tools.
However, many operations are moving toward a more holistic SaaS stack, and ERP systems promise to offer the total package, from front-end to back-end, from cash flows to inventories, from data analysis to powerful forecasting.
The bottom line, if your operation is growing, if there are many departments with lots of moving parts, if your workforce is distributed across the planet, perhaps ERP is right for you.