ERP Financial Accounting - Integrated or Not?

ERP - Publications Process Management By: Dr. Harald Dreher - Apr 6, 2021

Benefit from 3 decades of experience in IT strategy, digitalisation, ERP consulting and process optimisation...

When looking for new ERP software, the question always arises as to whether a solution with or without integration of ERP financial accounting should be sought. Simply answering this with yes or no is not possible on a solid basis. The requirements in the company are decisive for an integrative or separate ERP solution.

ERP Financial Accounting - Integrated or Not?

When looking for new ERP software, the question always arises as to whether a solution with or without integration of ERP financial accounting should be sought. Simply answering this with yes or no is not possible on a solid basis. The requirements in the company are decisive for an integrative or separate ERP solution.



ERP Financial Accounting - What Does Integration or a Standalone Solution Mean?

When we talk about ERP systems, we first use this general term for software solutions that are used in companies for the most important tasks. These include solutions for materials management, supply chain, resource planning, logistics, production and much more. The decisive advantage of integrated systems is - the word "integrated" expresses it aptly - the integration of data and documents. This also makes it possible to access the data in one system. Therefore, ERP providers have made great efforts to integrate more and more functions and business processes into their software. One of the first integrations was financial accounting. This was soon supplemented by cost and performance accounting requirements as well as requirements from controlling. Other integrations today include customer relationship (CRM) requirements through to integrations as part of logistics solutions for multi-channel companies.


Advantages of ERP Systems with Integrated Financial Accounting ...

ERP financial accounting can combine different requirements of a company in one solution. These can be tasks from controlling, key figure management, budget preparation, budget monitoring and project controlling, which can be brought together in one place. Why is this so important? Because the entire analysis and thus also the evaluation and subsequent management decisions are based on one database; (single point of truth). In many cases, different systems and data sources provide a fast and reliable evaluation. In order to ensure reliable evaluations of different data sources and transactions, a high level of quality assurance is usually necessary.

If a company operates different systems for accounting, payroll, human resources, customer management system CRM, marketing and service management systems, high expenses for the production of high-quality master data are automatically necessary. This data is usually stored multiple times in the different applications and must be maintained.


Master Data & ERP Financial Accounting Solutions - Realise the Competitive Advantage

A central use of master data leads to a reduction of the maintenance effort of the individual master data. A customer master data with all characteristics, from the address to the contact person to the delivery times, is needed several times in the company. Sales uses this master data for sales. Marketing will use CRM data for campaigns. Logistics and merchandise management will make a connection between the customer and the delivery address. Financial accounting needs information from the purchase order, merchandise management, the shipping location and the credit limit defined for the customer for invoicing. This small example clearly shows that in connection with ERP and financial accounting, data is always generated that revolves around financial accounting. If this data is stored in different systems, these different systems also need attention in order to keep this data of high quality. And this is usually in different systems with different people in charge. With a new ERP selection and in connection with an I.T. strategy that helps to design processes in a lean and efficient way, integrated ERP financial accounting plays out its advantages to the full.

Data that is needed in financial accounting is already available in the ERP system. This is then only supplemented for the requirements of financial accounting. This can be data such as bank details, credit limits and much more.


What Are the Advantages of an Integrated Document Flow?

Every transaction - for example, the purchase of an item - generates a document. This is made available to other users as information in an ERP system. This document - in this case the purchase order - is immediately available to the accounting department after receipt of goods and pending payment of the supplier and can be directly assigned to the incoming invoice without paper. A reduction of the handling effort of up to 35% is easily possible.


Data Evaluations & Data Management

The fact that the same data is available in all systems makes it much simpler and easier to evaluate. Analyses of purchasing behaviour can be created with times of day, seasonal information and much more. Key figures from financial accounting can be merged with transaction data from sales and service. In this way, a comprehensive picture of the customer can be generated. ERP systems today are rich in data analysis tools that allow you to create comprehensive reports in your company and provide tools to users to be able to create predictive analyses.


What Are the Functions of a Good ERP Financial Accounting System Today?

  • General ledger functionality
  • Cost analysis
  • Liquidity analysis
  • Profitability analysis
  • Automated payroll
  • Budgeting
  • Financial reconciliations
  • Investments
  • Loan and inventory interest calculations
  • Hedging costs and revenues
  • Invoicing and maintenance

and many special requirements from cost centre and asset accounting. Connections (interfaces) to payment modules for the automatic booking of payment flows are standard today. This is not only the case with integrated ERP financial accounting, but also with all good "stand alone" ERP financial accounting.


Integrated ERP Financial Accounting also Improves the Required Compliance

Legislators are increasingly demanding proof that regulations are complied with and documented. These are factors that are costly for a company because they are not directly related to the direct value creation for customers. It is therefore extremely important to keep these process costs and expenses as low as possible in order not to reduce competitiveness. A company that cannot access this data immediately and supported by the ERP system will soon find that it reduces its competitiveness compared to competitors who use this tool. At the same time, however, it increases the effort when the legislator demands this evidence.

Where there are advantages, there are also disadvantages - which ones can be observed with integrated ERP financial accounting? First of all, it is important to distinguish that there are ERP systems that offer financial accounting as an elementary component of their solution on the market. Furthermore, there are ERP providers that offer an ERP solution but do not have their own integrated ERP financial accounting. These providers usually use 2 alternatives: Alternative 1: ERP financial accounting can be installed with a preferred software partner. These two providers know each other, the solutions and the data exchange via interfaces is a promised feature of a total solution. Usually these two providers act together and the solution is introduced by the ERP provider as part of a general contractor. Alternative 2: ERP financial accounting is completely free. Data exchange is ensured via a standard interface. Here, the individual providers usually operate separately. This solution is also used time and again if financial accounting already exists in the company.



Which Solution Has the Strongest Degree of Integration?

  1. ERP software with integrated ERP financial accounting from a single source has the highest and best level of integration.
  2. An ERP software with connected, preferred partner solution as financial accounting works with interfaces that are coordinated with each other. In most cases, bidirectional data exchange is then relatively easy.
  3. An ERP software with free choice of financial accounting is usually operated via a standard interface and thus also has the lowest level of integration with an ERP system. Nevertheless, it can make sense to use such a solution, especially if special ERP software is used that is not widely available on the market or requires industry specialities. These ERP systems usually focus on technical and organisational requirements. Or, for financial reasons, a specialised financial programme must be used in order to be able to map consolidation tasks in the context of internationalisation, for example.


Summary & Recommendation for Action:

Every organisation and every company is different, there is no perfect solution that fits all requirements. Therefore, it is important to assess, based on objective requirements, which is the best solution for your company in order to secure competitive advantages through the use of I.T. In other words, an ERP system alone is not the only answer to digitalisation and digital transformation for the changes in their competitive environment. After you have analysed the value chains and the processes of their current state, you can start to create an optimal future business process design, document it in a specification and implement it.



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We hope you find this publication useful. If you have any further questions on this topic, we look forward to hearing from you." - Dr Harald Dreher