What is an ERP System in Accounting: Key Features and Significance

Introduction

The accounting and finance department is often burdened with large volumes of data and tedious processes. However, with the implementation of automated and autonomous solutions, the accounting and finance industry has come a long way. 

One such solution is the Enterprise Resource Planning (ERP) system that allows businesses to automate their processes and integrate with different tools to allow a seamless flow of data from multiple sources. 

In this blog, we are going to understand what an ERP system is in accounting, how ERPs benefit the accounting industry, and the key features of ERP systems. 

What is an ERP System in Accounting and Financial Management?

An ERP system enables organizations to increase their operational efficiency, primarily in the finance and accounting industry. The system helps companies manage and automate financial processes such as account reconciliation, general ledger entry, accounts receivables (AR) and payables (AP), and regulatory compliance.

ERP systems centralize the storage of all financial information and allow organizations to process, track, and manage all accounting processes in one place. They provide a centralized platform to record, process and report all financial transactions and data. 

How Do ERP Systems Drive Value for Finance and Accounting Teams 

ERP systems essentially help finance and accounting teams by enabling them to collaborate seamlessly, be more productive, ensure financial integrity, and manage all the stakeholders efficiently. 

Let’s deep dive into how ERPs create value for finance and accounting teams:

1. Increased productivity: ERPs automate the data entry process, which used to be a mundane and time taking process traditionally. This further helps in simplifying processes like account reconciliation, AR, and AP, in turn helping accounting teams to manage financial close better. As your employees will be free from working on tasks like data entry and data processing, they will be able to focus on more critical tasks and be more productive. In fact, accounting solutions such as HighRadius Financial Close Management software automate journal entry and result in 40% close productivity improvement. 
2. Seamless collaboration: Since ERPs allow employees to track all the processes in a single place in real-time, they don’t have to use multiple software to understand what’s happening with different financial processes. Everyone has a complete overview of the stages where each task or process is, making it easier to collaborate with peers. For accurate financial reporting, collaboration between accounting teams is extremely important, and solutions such as HighRadius Maker Checker Workflow enable organizations to monitor priority tasks and assign roles based on multi-level reviews. 
3. Accurate financial reporting: Having a one-stop solution for all the financial data makes it easy to manage, analyze, and report information for finance and accounting teams. ERPs also enable the integration of real-time data so finance teams can efficiently report on the financial performance and health of the business. 
4. Stakeholder management: In addition to enhancing communication and collaboration among employees, ERPs help increase customer and vendor experience. ERPs provide finance and accounting teams with all the information regarding the customer buying stage so they can streamline processes like invoice delivery. Similarly, for vendors, accounting teams can plan and automate the payment system through ERPs. 

ERP System Key Features and Functions for Accounting Department 

ERP systems ensure that companies are able to seamlessly enhance and optimize their accounting and finance functions. This is possible because of the wide range of tools and features that an ERP system offers. Let’s take a closer look at the features and functions of ERPs.

1. Automation

   One of the key features of an ERP system is automation, which allows for enhanced productivity by automating repetitive tasks in the finance and accounting departments. The two major areas of ERP automation are the following:

   1. Transaction automation: ERPs enable the automation of transaction recording in journals, reducing the chances for errors, making the process more efficient, and minimizing the need for manual intervention. Through journal entry automation, ERPs enable the automation of the following accounting functions:
      1. ERPs can automate the bank reconciliation process. Since these systems already store financial transactions, they can easily match the journal entries with bank statements, identify anomalies, and create adjusting entries where needed to improve the reconciliation process. To enhance reconciliation effectiveness further solutions such as HighRadius Account Reconciliation Software, seamlessly integrate with the ERP system, extract data from the ERP and post journal entries back to it automatically.This helps organizations experience up to 50% improved productivity. 
      2. Fixed asset management can be streamlined through ERPs as the systems have detailed records of all assets. An ERP system allows employees to automate depreciation calculations, track the lifecycle of fixed assets, and manage asset revaluation and impairment processes. 
      3. In AP and AR functions, ERPs automate vendor invoice processing and generation and distribution of customer invoices, respectively. 
   2. Workflow automation: The second part of automation enabled by ERPs is workflow automation. These systems allow for the automation of defining workflows, assigning tasks, notifications, and the routing of documents and information. By enabling workflow automation, ERPs essentially streamline and standardize financial processes, ensure all employees are on the same page, and mitigates errors. 

   

2. Audit and compliance

   ERPs help companies be audit-ready and compliant to regulatory requirements. These systems record all the activities that take place regarding financial information, i.e., any changes made to the financial information in an ERP will be recorded. This is referred to as an audit trail. Thanks to the audit trail, employees can easily see who made what changes at what time, thereby increasing transparency and accountability when it comes to financial information. 

   The audit trail also makes it easier to spot errors and see who was responsible for making the entry. This further helps in ensuring that people aren’t engaging in fraudulent activities and the financial integrity of the company isn’t compromised. 

   As organizations aim to enhance efficiency in their audit process, by integrating their ERP with HighRadius Record to Report solutions, they can leverage features such as Close Checklists, which provide them with an efficient audit trail with supporting documents, web links, and comments for audit. Further, they get a clear view of all changes made to a task, which ensures the integrity of the close process. This results in a 30% reduction in days to close. 

3. Financial analytics and reporting

   Financial reporting is one of the most important accounting processes and needs to be performed accurately to ensure the financial integrity of an organization. ERPs enable accounting professionals to do the same through customized reports, data analysis and visualization, and granular visibility into financial information. 

   With an ERP system, accounting and finance teams can deep dive into all the financial data and use data visualization features to better understand financial trends and insights. Also, the financial reporting parameters could vary for different organizations, which is where customized reporting that allows users to define reporting parameters comes in. 

   Through such advanced financial reporting capabilities, companies can make better strategic decisions, stay compliant with regulatory laws, and communicate their financial health to stakeholders in an effective manner. To further enhance the accuracy of their financial reports, organizations can integrate their ERP with specialized solutions such as HighRadius Anomaly Management Software, which leverage AI/ML to identify any errors or omissions in the source ERP data. In this way, organizations can identify anomaly patterns and resolve them proactively, achieving up to 80% anomaly resolution. 

   

4. Budgeting and forecasting

   Organizations today need to ensure that their budgeting and forecasting are both accurate and adaptable, and ERPs enable them to do so. ERP systems are populated with real-time data, which gives accounting and finance teams as close an overview of the current market situation and the company’s real-time financial position as they can get. This allows them to create accurate budgets and forecasts. 

   Furthermore, the granular visibility into the company’s previous and current financial position enables the company to gain the in-depth knowledge it needs to make effective financial decisions for steady growth. For example, through past data about operational expenses, treasury professionals can ensure that they account for similar future expenses while preparing the budget. 

   ERPs essentially allow companies to better allocate their monetary resources and manage cash inflow and outflow efficiently for increased profitability. 

5. Tax management

   Another key area where ERPs come in handy is tax management. Through their automation capabilities, ERPs can calculate taxes, such as sales tax, corporate tax, etc., for organizations. These systems are further capable of creating tax reports, automating the tax filing process, and ensuring the company remains tax compliant. 

6. Security measures and risk management

   Since ERPs store a large volume of sensitive financial data, which means the data bank needs to be handled carefully. Thankfully, ERPs are equipped with security measures that ensure effective risk management and mitigate the possibilities of any kind of data breach. 

   The financial information stored in ERPs is protected by security measures, including encryption and data masking. Access to sensitive information is further restricted, and only people having proper access can view the financial information. 

   Such measures help ensure that employees are not privy to information that’s above their station and minimize the likelihood of engagement in any fraudulent activity. To enhance data security and privacy, organizations can integrate their ERP with accounting solutions such as HighRadius Record to Report Suite, as it prioritizes data security and privacy, meeting key compliance standards such as GDPR, HIPAA, SOC 1 Type 2, and SOC 2 Type 2. This ensures that your data remains confidential and secure, giving you peace of mind while managing your finances.

7. Integration

   While ERPs have transformed the accounting and finance functions, this is not done in silos. An ERP basically ensures that any sort of business data from any department is stored in one place. 

   For example, your ERP system can integrate with a CRM or a HR management system and ensure the smooth flow of information from all these tools. This way, finance teams have a clear understanding of the buyer journey or employee data, allowing them to account for these data points during financial decision-making. To enhance accounting processes, organizations can integrate their ERP with solutions such as HighRadius Record to Report Suite, which is ERP-agnostic and seamlessly integrates with all leading ERPs.

How HighRadius Can Integrate with Your Existing ERP System 

In order to get the most out of an ERP system, you need to integrate it with other software and tools being used at your organization. ERP integration ensures seamless data flow and functionality across different departments, enhancing efficiency and enabling better decision-making throughout the organization. HighRadius offers you a seamless ERP Integration Solution that allows you to do the same. HighRadius’s integration 

Here’s how HighRadius’ ERP integration solution can be a game changer for your organization:

1. Centralized data repository: HighRadius provides all the information in one place, enabling you to access real-time data when required and, in turn, eliminating the chance of redundant or missing information.
2. Minimized IT team intervention: HighRadius handles most of the IT-related efforts during implementation for you. All you need to do is configure programs to generate and transmit the open AR, master data, and the bank payment files.
3. Easy and secure connectivity: HighRadius uses Secure File Transfer Protocol (SFTP) and API-based integrations to ensure secure transmission of data and are SOC I, SOC II, ISO27001, and GDPR compliant.
4. Quick implementation: HighRadius uses an implementation methodology that ensures quick deployment of the solution and clients realize value and start seeing measurable business results within 3 months.
5. 24/7 support across geographies: Customers can submit support tickets through an online portal – 7 days a week / 24 hours a day. HighRadius also offers a user-friendly support portal for logging issues, questions, and requests, and the ability to track all support communications in one place.

HighRadius has a prebuilt HEX (HighRadius Extractor) plug-in for ERPs to completely automate the extraction of the required information, enabling easy data flow exchange. Our solution also easily integrates with all major ERPs, like SAP, Microsoft Dynamics 365, Oracle, and NetSuite, and can be easily scaled to meet the needs of growing organizations, making it a flexible and adaptable solution. Through strong extensibility and open APIs, HighRadius allows for 2-way data transmission between ERP and other financial products from HighRadius, including Financial Close Management, Account Reconciliation, Anomaly Management

Modern accounting requires utilizing the power of ERP integrated accounting packages and interconnectivity systems in a seamless manner. HighRadius, with its expertise and reliable system-wide integration, enables companies to improve their financial operations and ensure enhanced productivity, agility, efficiency and accuracy. With our advanced integration capabilities, our flexible and adaptable solutions and advanced Record to Report solutions, we ensure that businesses remain competitive in an ever-changing business environment.

In addition to ERP integration, HighRadius has the capability to integrate with your in house system to provide seamless data flow across departments. With this enhanced capability, you can easily optimize your operations to increase efficiency and productivity. 

FAQs

Q1. What is an ERP accounting software?

An ERP accounting software offers you a range of tools and solutions to optimize and streamline your business processes through automation. ERPs centralize data storage from different departments at an organization and provide a comprehensive overview of functions and processes.

Q2. How does ERP help accounting?

An ERP system helps automate and streamline accounting functions and processes like invoice processing, payroll management, and tax management. ERPs store all the financial information in one place, optimize workflows, and integrate with other tools and software to help enhance efficiency and drive better decision-making. 

Q3. How to use ERP accounting software?

After doing the initial setup and configuration, ERP systems in accounting are used for data management, transaction automation and processing, fixed asset management, financial reporting, audit and compliance, budgeting and forecasting, and overall data integration across departments.

Q4. What are the three common types of ERP for accounting?

The three common types of ERPs for accounting are cloud-based ERP, on-premise ERP, and hybrid ERP. Each of these solutions has its own advantages and can benefit organizations depending on their needs. You need to choose the type of system that aligns best with your business goals. 

Q5 What are three most commonly used ERPs?

There are a lot of ERPs that can help you optimize your business processes. However, Microsoft Dynamics 365, NetSuite, and SAP ERPs are used most commonly in the market. Companies can use the advanced functionalities of these ERP systems and centralize data flow across departments.