ERP for Accounting and Financial Management

Enterprise resource planning (ERP) software is a suite of applications that work together to help a company manage its entire business, not just the financial functions. But accounting and financial management are core components of all ERP systems. Companies depend on financial management in ERP to efficiently run routine but essential tasks such as sending invoices, collecting cash payments, and calculating taxes, and also to analyze and apply finance data in creative ways to help managers make strategic investment decisions and plan for organizational success.

What Is Accounting and Finance in ERP?

The accounting and finance modules in an ERP system provide finance teams with the capabilities they need to centrally manage the financial aspects of an organization. These tools include standard accounting functionality, such as reporting, accounts payable and expenses, accounts receivables and cash management, and revenue recognition. ERP also can provide advanced capabilities, such as budgeting, forecasting, and order processing.

Key Takeaways

• ERP software goes beyond the basics of accounting to help businesses cover all aspects of business and financial management, tying all areas of the business together.
• ERP software is one of the main drivers of automation in finance and accounting processes, helping finance teams work efficiently and have more time to spend on creative work analysis, forecasting, and budgeting.
• By pulling together data from across a business, ERP software helps accounting and finance teams provide deeper and more relevant monitoring and analysis of financial performance.

ERP in Finance and Accounting Explained

The finance and accounting functionalities within an ERP system include what’s available in standard accounting software, offering capabilities for general ledger management, cash flow tracking, management of accounts receivable and payable, and handling expenses and invoices. One of the main advantages of using an ERP system for accounting and finance is its ability to gather data from various sources, consolidate it, and store it centrally for use in reporting, analytics, and other key financial operations. With this consolidated view, ERP’s finance and accounting capabilities can provide the data foundation for collaboration across business units for strategic planning and budgeting and investment decision-making.

Importance of ERP in Finance and Accounting

When thinking about the importance of ERP for finance accounting, consider two broad areas—automation and analysis. ERP provides the automation around routine but important tasks such as invoice matching, revenue recognition calculations, and account reconciliations. Increasingly, elements of this automation are supported using AI and machine learning. Having this automation gives finance and accounting professionals the time they need to do the analysis, planning, and forecasting that guides the business and helps shape critical decisions.

ERP then delivers the data and capabilities needed for finance and accounting teams to run that analysis and planning and to share the results in meaningful and actionable ways. For example, an ERP system can help organize who your customers are, what they owe, and how often they make a purchase. It can integrate with sales and supply chain systems to intelligently manage your operations. It can help teams in finance and across the company do forecasting and budgeting based on the most current information. Overall, ERP systems help accounting and finance teams manage their organization much more effectively than just adding numbers together on a spreadsheet.

Benefits of ERP in Finance and Accounting

Finance and accounting teams play a leading role in key functions, including capital allocation and cash flow management; financial monitoring, reporting, and auditing; and budgeting and forecasting. The benefits these teams get from an effective ERP system ultimately help them work faster, provide better data to decision-makers, and enable them to have greater confidence in their analyses and reporting.

• Automation: The process automation enabled by ERP systems helps businesses operate more efficiently, removing elements of human labor for routine tasks and reducing the risk of human error. For instance, in the expense review process, when an expense hits above a certain threshold, it can get automatically routed to the executive who has the authority to approve it, instead of getting stuck waiting for a lower manager to assess and pass it along. As soon as the invoice or expense is entered, the ERP system can detect who has the authority to authorize it, helping things operate more efficiently.
• Real-time data: Having the most current information available allows businesses to make decisions based on a complete picture of the organization. An ERP system can continuously pull data together from across departments and facilitate access to that data via dashboards and other data visualization tools to help the company operate better as a whole, especially when business conditions change quickly. For example, an ERP system can tap real-time, unified data to do continuous cash forecasting, looking across areas such as sales, customer payments, production, and input costs to spot problems that could crimp cash flow.
• Reporting speed and accuracy: Much of the responsibility of finance and accounting teams has to do with reporting. Let’s use the example of fixed assets, an important balance sheet component that accountants must track as the company buys new assets and retires others. With an ERP system, a manager on the department level can add information on a new asset to the system; finance and accounting sees that change right away and their reports automatically update. Another example is consolidating and closing the financial books at the end of a month or quarter. Using the automation and capabilities in an ERP system, finance and accounting teams can close their books faster, giving executives and business unit leaders key information sooner and giving analysts throughout the company more time to assess where to make improvements.
• Forecasting and analysis: When an ERP system consolidates areas such as payroll, purchasing, accounts payable, accounts receivable, and sales, it allows all of that information to come together to build reports and create the forecasts and analyses that businesses rely on for quick responses and long-term planning. That complete data picture also supports more in-depth scenario planning and variance analysis and helps leaders align financial goals with strategic objectives. If teams have to pull the data together manually from individual systems, it’s a major effort given the huge amount of information needed, and the data gets stale quickly, making it harder to make accurate predictions. ERP systems that leverage real-time data and have access to information from different parts of the organization can simplify and improve forecasting, giving businesses a better chance of hitting their targets.

Key ERP Modules for Accounting and Finance

ERP software is modular, meaning that companies can add capabilities in bite-sized chunks that are specific to the needs of different areas of the business. For finance and accounting, these ERP modules are centered around helping teams manage financial processes, meet compliance requirements, do forecasting and budgeting, and deliver accurate financial reports to executives and stakeholders.

• Accounting: An effective ERP system serves as an enterprise-wide accounting platform that unifies financial data from disparate transaction systems and external source systems to create detailed accounting entries that meet statutory, corporate, regulatory, and management reporting needs. Finance teams rely on the accounting tools within ERP systems to run the general ledger, a core component of the accounting system that records and consolidates all financial transactions and provides the basis from which a business builds its financial reports, including the income statement and balance sheet. Data from within ledgers and subledgers can be used to generate analytical insights for the business, providing decision-makers with a deeper view into operational results.
• Accounts payable and expenses: Finance teams use the accounts payable (AP) module in ERP to automate and manage outgoing payments to suppliers and vendors, using it in part to eliminate manual tasks, such as invoice entry and matching. ERP lets finance teams deliver more sophisticated cash management for accounts payable, which is typically measured using days payable outstanding (DPO). In general, a higher DPO is better, since you’re holding onto cash longer, and ERP systems can help teams run at the optimal DPO without missing payments. Finance teams could also use ERP to support strategies such as dynamic discounting, through which an AI model embedded in ERP recommends when the company should pay a supplier earlier to claim a discount for early payment, without risking a cash shortfall.
• Accounts receivable: The accounts receivable (AR) component of an ERP system deals with invoices owed and incoming payments from customers. The system helps finance teams record payments, send invoices and consolidate data from invoices, and match and track customer payments and outstanding balances. Finance departments pay close attention to receivables as a barometer of liquidity, making sure payments come in on time, that they’re giving customers the right payment terms and credit, and that the business is maintaining a healthy cash flow. ERP systems can help automate many of these AR management tasks such as creating customer invoices, sending payment reminders, and collecting payments, reducing the need for manual data entry and payment processing while boosting real-time financial visibility, including cash balances and forecasts. The system can provide reporting and dashboards on AR KPIs such as days sales outstanding (DSO).
• Fixed assets management: Fixed assets refer to all the physical things a company owns for long-term use to run the business, such as manufacturing equipment, office buildings, furniture, vehicles, computers, and other equipment. Within an ERP system, fixed asset management modules help uncover cost-saving opportunities by calculating asset depreciation, disposal, and maintenance, allowing businesses to manage asset lifecycles from acquisition to retirement. ERP systems can also manage complex lease accounting, including meeting ASC 842 and IFRS 16 lease accounting standards during the life of right-of-use assets and leases, making sure those leases and liabilities are properly capitalized on the balance sheet.
• Cash management: Forecasting and optimizing cash flow and liquidity is one of the most critical functions for finance and accounting teams. ERP systems optimize the cash management process by pulling together data from areas such as the general ledger, payables, receivables, and payroll to give businesses direct visibility into cash inflows and outflows and help ensure that they always have enough cash to fund core business operations. The cash management capabilities in an ERP system help finance teams monitor and control the cash cycle by enabling them to track bank reconciliations, manage cash receipts and disbursements, and create cash forecasts.
• Financial reporting: Financial reports are what businesses use to communicate the health and performance of a business to internal leaders and external stakeholders, making them a core component of financial management and a standard output from ERP systems. Accounting and finance teams typically create financial reports, such as income statements, balance sheets, and cash flow statements on a quarterly and often a monthly basis, as well custom reports for in-depth and ad hoc financial analysis. ERP systems can dramatically improve this process, automating the collection and processing of financial data to help reduce errors and ensure accuracy and consistency in financial reporting. ERP can also help finance teams monitor reports on an ongoing basis, spotting problems in sales or costs well ahead of the quarterly close. More advanced ERP systems, for example, can embed AI into the reporting process to help spot anomalies within operational and transactional data.
• Budgeting and forecasting: The budgeting and forecasting module in an ERP system helps finance teams create, manage, and analyze budgets that are a foundation of a business’s financial planning and analysis cycle. Budgets built using ERP modules include detailed financial plans, such as revenue and spending targets for a future period, which finance teams can then track to watch for variances from the budget. Forecasts are also built using ERP tools, combining historical sales and expense data with new product and investment plans and the economic outlook. With tools for scenario planning and variance analysis, budgeting and forecasting within an ERP system helps businesses align financial goals with strategic objectives and track whether they’re on target to meet those. The budgeting and forecasting module is also where finance teams drill down and compare what was budgeted and forecasted versus the actuals and determine coarse corrections as needed.
• Compliance and audit management: The ERP features focused on compliance and audit management help businesses maintain compliance with accounting standards, regulations, and internal policies. Finance teams perform internal and external compliance audits to identify weak spots in the organization’s regulatory compliance process and embed compliance standards into daily operations and workflows, aiming to reduce risk and avoid legal trouble or fines from compliance violations. ERP systems can help this effort by automatically checking system access requests to prevent violation of segregation of duty controls. ERP systems also deliver reports and audit trails needed for compliance reviews.

Move Finance from Reactive to Strategic with Oracle ERP

The use of ERP software within accounting and finance functions can benefit the entire business, connecting the finance side to operations for improved decision-making and efficiency. ERP systems can help companies operate better by establishing a common data source across all parts of the business, sharing current department data with finance and accounting teams to improve accuracy and efficiency around budgeting, forecasting, reporting, procurement, project management, governance, risk, and compliance.

Oracle Fusion Cloud Enterprise Resource Planning (ERP) offers numerous integrated capabilities to help organizations automate finance and accounting processes and enhance operational efficiency as well as analytics to respond to market shifts and drive growth. As a comprehensive suite of integrated applications, Oracle Fusion Cloud ERP allows for a smooth flow of data and easier collaboration across departments, improving visibility and decision-making. The embedded analytics and reporting capabilities of Oracle Fusion Cloud ERP provide real-time visibility into key indicators, allowing organizations to monitor financial performance, identify trends, and quickly make informed decisions. Interactive dashboards, customizable reports, and predictive analytics help drive responsiveness, while built-in compliance functionality lets businesses stay on top of regulatory requirements, industry standards, and best practices.

Finance and Accounting ERP FAQs

How can ERP impact your financial management?
ERP software helps companies improve efficiency, accuracy, and visibility around finance and accounting functions, supporting their efforts to reach their financial goals and drive sustainable growth.

Which activities can accounting and finance ERP components perform?
Accounting and finance components in an ERP system perform activities related to the management of the general ledger, accounts payable and receivable, cash management, budgeting and forecasting, reporting, and cost accounting, among other capabilities.

Do accountants use ERP systems?
Accountants across various industries commonly use ERP systems in their day-to-day work, as the software offers many essential functionalities for auditing and financial management.