ERP Systems vs Accounting Software

ERP Systems vs Accounting Software

Given the increasingly complex nature of the digital economy, combatting inefficiencies in financial transactions and operations has become a priority for many companies. Inefficiency has a negative impact across the organisation, costing up to 30% in revenue each year, wasting time, reducing quality and damaging morale.

To address this challenge, many organisations look towards financial digital tools like Accounting Software or Enterprise Resource Planning (ERP) Systems – but while there are overlaps in functionality, there are clear differences between these solutions, particularly in the potential outcomes. To offer an analogy – it’s the difference between owning a hammer and toolbox.

What are accounting software solutions?

Accounting Software are applications designed specifically to support finance teams in recording business transactions, such as purchases, sales, payroll, ledgers, and various other accounting activities to produce financial statements as a consideration in the decision-making process.

It has functions like general ledger, journal entries, accounts payable and receivables, billings, fixed assets to cover basic financial requirements such as cash flows, ledger and balance sheets. This supports streamlining financial reports like balance sheets, income statements, statements of cash flows and, profit and loss statements. By integrating financial and cost accounting into a single system, it lets users carry out financial recording within one set of accounts.

It provides organisations with faster and more accurate financial statements, miscalculation avoidance, improved job efficiency, automated transactions, reduced labour, speeding up the decision-making process by presenting accurate data, and giving a snapshot of the financial condition of the company at any time. In addition, more accounting software are now cloud-based, which provides advantages in terms of scalability, accessibility, cost effectiveness, ease of offsite audits and automated updates.

However, despite the in-depth capabilities of accounting software, it still falls short, particularly as an analytics and operational tool, given its singular focus on financial functions.

iPad shows an internal photo of a warehouse

What are ERP Systems?

If accounting software can be thought of as a tool, then ERP Systems represents a toolbox – it provides tools that the various functions within an organisation can use, including financial management, supply chain management, customer relationship management (CRM) and others. These functional tools make up various “modules”.

But ERP systems are more than just a wider range of tools – they also integrate these modules into a connected framework with actionable information being shared between functional groups. Instead of looking at digital tools from the needs of a singular functional group, ERP systems are designed to serve and support an organisation as a whole, with a more holistic goal of optimising operations and providing deeper insights into a business as a whole.

For example, ERP Solutions can take invoices for goods purchases created by the accounting team which can be seen in the inventory team through the increase of items, and the finance team which sees an increase in expense. Corporate managers can then get a comprehensive, 360-degree enterprise-wide view across all sites, allowing them to easily analyse and manage day-to-day business operations – finance, inventory planning, budgeting, supply chain and more. As a toolbox which can easily store other tools, a good ERP system can easily integrate with other solutions like Point-of-Sales, e-Commerce, barcode or RFID scanners, and can be easily adapted to various business and industry models, from retail and wholesale to manufacturing and educational institutions.

In addition, many leading ERP systems now layer artificial intelligence on top of this integration. This allows organisations to enhance productivity through deeper business processes insights, optimizing operations and predictive analytics, and embedded machine learning to streamline workflows through “learning” from data to improve automated standard procedures. For example, by analysing sales and marketing data, AI solutions could potentially identify opportune moments to reach out to customers, and potentially even automate this outreach. From a manufacturing perspective, AI could be used in developing preventive maintenance processes, and automating the ordering and procurement of new parts.

In terms of deployment, there are various options for ERP systems – cloud-based ERP, on-premise ERP and a hybrid of both. While on-premise ERP solutions are installed locally on the organisation’s IT infrastructure, cloud-based Software as a Service (SaaS) ERP are provided as a service to be managed centrally in the cloud. The advantages of cloud-based ERP include lower ownership costs, continuous and up-to-date system upgrades and enhancements, improved system performance and accessibility, easier scalability and lastly reduced deployment time. Lastly hybrid ERP system as combination of on-premise and cloud systems will give organisations the best of both worlds, allowing organisations to manage cost, scalability, and security requirements.

What’s the key differences between Accounting Software and ERP Systems?

Returning to our analogy of a single tool vs a toolbox, the key difference lies not just in terms of the scope of functionality, but the value in which having a wider range of interconnected functionality can bring. Accounting software, while specialised, gives good control and insight into a single aspect of an organisation. In comparison, ERP Systems can give a holistic and integrated approach to an organisation’s entire business.

Through this integrated lens, there are six key benefits that ERP systems have over accounting software:

  1. Higher productivity: ERP systems allow companies to streamline and automate their core business processes across functions and allows organisations to do more with fewer resources.
  2. Deeper insights: With an integrated, organisation-wide framework, ERP systems removes information silos and helps presents a comprehensive “single source of truth” – allowing companies to get faster answers to critical questions.
  3. Accelerated reporting: The comprehensive “single source of truth” also accelerates business and financial reporting, which in turns helps create the data and insights that business decision makers can act on in real time.
  4. Lower risk: Increased business visibility and control, also supports easier compliance with regulatory requirements. Data analytics, supported by AI, also helps predict and prevent risk.
  5. Simpler IT: By using integrated ERP modules that share a database, ERP systems simplify IT infrastructures and streamlines work processes
  6. Improved agility: With efficient operations and ready access to real-time data, ERP systems can help to businesses quickly identify and react to new opportunities
  7. Flexibility: Given the nature of “modules”, ERP systems can easily be customised for a wide range of company sizes and across different industries – and is able to evolve alongside a company’s growth journey.

ERP systems support companies of various sizes

Despite the far-reaching capabilities of ERP systems, they are not just solely for large enterprises. ERP solutions are easily scalable and can be deployed for businesses of all sizes – small, medium, and large. For example, small business can use ERP solutions – typically in the cloud, which are quick to install and designed to grow with the business.

Medium sized enterprises can use ERP tools which help growing businesses scale and compete without the complexity and cost. Large organisations which have global or subsidiary operations need a robust, market-leading ERP system with embedded AI, machine learning, and analytics – and intelligent automation to transform processes. These ERP systems can be deployed as needed – on-premise, cloud and hybrid, and where needed – integrated with existing databases or on newer, powerful in-memory databases.

Ultimately, an ERP system is far more than the sum of its parts and goes beyond managing resources. It’s a solution that plays a pivotal role in helping businesses run their current operations more effectively, while also giving businesses the insights to identify and react to new market opportunities.