Have you ever been in a meeting with several department heads to discuss an important business issue, only to have it devolve into confusion over conflicting information pulled from different sources? It’s a common scenario in companies that do not use enterprise resource planning (ERP) software. At the heart of ERP systems lies a shared database with information from all the processes across a company, such as accounting, inventory, manufacturing, human resources (HR) and order management. An ERP’s centralized and integrated database feeds all the different business applications, ending unproductive debates about which information source is “right.”

Among the many possible modules within an ERP system, the finance module is often a company’s foundation. This article digs into the components, capabilities and benefits of this all-important module, and outlines how it can help fuel a business’s growth, efficiency and profitability.

What Is an ERP Financial Module?

An ERP financial module is one of many modules that could compose an ERP system and typically includes accounting, finance and reporting functions — each of which is made up of several components. A recent industry study of companies looking to purchase ERP systems showed that the finance module was the most critical for 89% of respondents. The number and scope of components included vary by software provider, and, even within the components, there are natural differences in features and capabilities. Understanding what a typical ERP financial module includes is a good starting point for a business that is trying to gauge which ERP would best fit its unique requirements.

Key Takeaways

  • ERP finance modules combine all the core features of various standalone accounting systems — such as general ledger, accounts receivable, accounts payable and reporting and analysis — into a single module.
  • Other features marry important operating information into the finance function, such as customer and vendor management, resulting in more meaningful reporting.
  • Automation and integration make the accounting, finance and reporting processes more efficient, which saves money and time, enabling a company to be more financially nimble.
  • How much value an organization gets out of a finance ERP module depends on the capabilities and customizations of the overall ERP system.

ERP Financial Modules Explained

ERP financial modules include the common features of standalone accounting systems, such as general ledger, journal entries, customer billing, accounts receivable and accounts payable. However, a critical difference is that, unlike a standalone accounting system, an ERP financial module is integrated with other business processes. It could include all of a business’s processes, from procurement, manufacturing, inventory and workforce management to ecommerce, sales and marketing. This allows transaction data to be shared among the different processes and to flow seamlessly upstream and down, enabling the automation of many accounting tasks, such as customer invoicing and account reconciliations. Finance modules also include automated reporting capability — they can run key financial statements, such as income statements, balance sheets and cash flows — in addition to ad hoc analysis. Some include advanced business intelligence tools and dashboards through which finance managers can view vital key performance indicators (KPIs) in real time.

Core Components of ERP Finance Modules

Managing a company’s finances requires several different components. The accounting components precisely track the results of a business’s operations in accordance with accounting standards and regulatory and tax rules. The reporting components help business leaders analyze, grow and steer the company, as well as maintain compliance with information requirements from investors, lenders and other stakeholders. Let’s dive deeper into each of the core components of ERP finance modules.

General Ledger

The general ledger (GL) is the backbone of every accounting system. It is the book of record that contains all of a company’s transactions, categorized by individual accounts. The GL is where all the accounting debits and credits are accumulated and organized and journal entries are posted. It is the basis for adjusted trial balances, which are used to prepare financial statements.

Accounts Payable

Accounts payable (AP) refers to the process of paying a company’s bills. It’s the team and the systems that make payments to outside suppliers and vendors for goods and services purchased by a company. For example, the AP team receives the company’s utility bill and processes it for payment, ultimately making a cash disbursement to satisfy the invoice. Typically, the details of all AP items are listed in an AP subledger, with summary information posted into the appropriate GL accounts.

Accounts Receivable

Accounts receivable (AR) is the process of invoicing customers for goods or services that the company has delivered. AR denotes amounts owed to a business and can be thought of as the opposite of AP. The AR component involves receiving orders, preparing and sending invoices to customers and collecting the amounts due. The details of all AR items are listed in an AR subledger, or invoice register, with summary information posted into the appropriate GL accounts.

Asset Management

An asset management component handles the tracking and valuing of a company’s non-inventoriable assets, meaning, property owned that’s not available for sale to a customer. Asset management applies to a wide variety of items, such as fixed assets, which include factory equipment, vehicles, furniture and fixtures. It also includes investments, like stock in other companies, and intangible assets, like patents. Inventory management is usually a separate ERP module, dedicated to tracking and assigning values to inventory, and to ensuring that stock is available to meet demand.

Cash Management

Every business needs to carefully track inflows and outflows of cash to make sure it has adequate available cash balances to meet its obligations. Good cash management practices also help businesses maximize collections from customers and optimize earnings opportunities for extra cash. The cash management component, sometimes referred to as treasury management, helps company leaders meet working-capital needs to keep their business solvent.

Customer Management

Customer management often is a separate module of ERP systems that documents all customer and prospect interactions and provides a central repository for the resulting data. This includes customer contacts, order history, prospecting, customer service and marketing touches. Information from the customer relationship management (CRM) module is integrated into finance module functions because it is critical for forecasting revenue, as well as for analyses that lead to enhanced sales and marketing efficiency.

Vendor Management

The vendor management component centralizes all vendor contacts and interactions as part of a business’s procurement and supply chain management processes. This component helps a company better understand the status of open purchase orders and how much is owed to vendors, and provides a central view of spending by supplier. It helps business leaders identify areas for cost savings and improve contract negotiations with vendors.

Banking Management

The banking management component of an ERP finance module hooks up to a company’s various financial institutions to automate the flow of statement data into the GL and facilitate bank reconciliations. Cash payments and receipts in the bank are automatically synched to the accounting, AP and AR modules, giving the company better visibility with regard to disbursements and customer payments that have cleared.

Profit-Tracking

No financial ERP module would be complete without a profit-tracking component. This feature allows management to see the overall financial position of the business at both high (summarized) levels and detailed levels. Understanding how a company makes profits today, and predicting profits in the future, is a fundamental necessity provided by the analysis and forecasting features within this component.

Multi-Currency Capabilities

Companies of all sizes may need to deal with multiple currencies. Whether due to paying global suppliers or accepting payment from international customers, converting foreign currencies can be tricky and underlie real gains and losses. The multi-currency component aids the ability to make, accept and convert payments made in other currencies.

Reporting

Reporting entails provision of both regular, standardized reports as well as custom analyses. This is a core feature of any finance module, because financial reporting, whether internal or external, is a universal need for all companies. The primary financial statements, including the income statement, balance sheet and cash flow statement, are run directly out of the module and can often be modified to fit specific reporting needs, such as consolidated/subsidiary views and different accounting standards, like Generally Accepted Accounting Principles (GAAP) in the U.S. or International Financial Reporting Standards (IFRS) outside the U.S. Reports for internal managerial use can be programmed, like dashboards, or developed ad hoc for a particular purpose.

Benefits of ERP Financial Modules

It’s hard to overstate the role of financial modules in delivering the overall benefits of ERP systems. Some of the benefits arise from having a consistent, centralized source of information. Others come from integration with other modules, such as inventory, ecommerce and project management, which adds operational data to the financial data on a shared platform. And still other benefits result from the efficiencies gained by streamlined processes and automation. Here’s a closer look at 11 benefits of ERP financial modules.

Enhanced Financial Reporting and Analytics

A shared database enhances the accuracy of financial reporting, reducing the likelihood of data errors and inconsistencies. It also means more staff time can be spent on analyzing the data, rather than compiling it. Business intelligence tools can be applied to identify trends and patterns in the data, which can influence business decisions. Furthermore, applying advanced analytics helps predict where the business may be headed, using sophisticated statistical and predictive methods. All of these valuable insights rest on the quality and availability of the data.

Improved Compliance and Audit Readiness

Keeping up with changes in the many layers of regulatory requirements is a common challenge for finance and accounting teams. ERP financial modules can provide a significant assist in taming that challenge, since most can be configured to automatically comply with GAAP or IFRS and some automatically update when those standards change. Additionally, business workflows can be programmed to conform with industry-specific standards, and role-based dashboards can enable managers to monitor adherence to them. Improved compliance helps a company avoid fines and penalties, enhances internal controls and better prepares the company for external audits. All that, in turn, reduces audit costs, time and potential for reputational damage.

Efficient Resource Allocation and Cost Management

The old adage “you can’t manage what you don’t measure” is especially applicable to ERP. Better access to high-quality and more current information gives managers better visibility into the results of operations than disconnected standalone systems can offer. Improved transparency helps identify operating processes that are working well and those with room for improvement. A significant benefit is the ability to optimize resources, fueling profitable areas of the company and reducing costs elsewhere.

Accelerated Financial Close Cycle

The financial close cycle is a significant, recurring undertaking for most accounting departments. It calls for a delicate balancing act to get the period’s results finalized quickly without sacrificing accuracy. ERP systems equipped with financial modules eliminate several of the most common financial close challenges, such as manually entered data errors, incompatible disparate systems and missing information. This, combined with a financial module’s automated reporting capabilities, accelerates the financial close cycle — which also means that reporting and analysis for decision-making gets into business leaders’ hands more quickly.

Better Cash Flow Management

Optimizing cash flow and managing working capital are much easier when supported by ERP finance modules, especially the cash and banking management components within the modules. Business managers can visualize cash inflows and outflows more precisely because of the enhanced visibility and reporting combined with real-time bank-balance information. Together with insights derived from customer and vendor management, this makes it easier for managers to forecast future cash requirements and manage credit facilities.

Enhanced Productivity

ERP financial modules automate a significant amount of tedious and time-consuming accounting and finance tasks, which enhances productivity in those departments. Consider the time saved by automated bank reconciliations or cash receipts synched with AR cash application. Automation also reduces the incidence of human errors and the time wasted by having to rework tasks. Moreover, enhanced productivity often goes beyond just these two departments, as integration with other modules, such as order management, inventory, warehouse and human resources, can liberate staff involved in those areas from certain obligations to the accounting and finance teams.

Improved Vendor and Customer Relationships

The centralized vendor and customer management tools provided by an ERP system with finance and CRM modules enable better communication with suppliers and customers. Suppliers appreciate timely payments and company contacts who have better visibility into supply chain status and billing information. Customer service is enhanced, since all customer contact is documented in the CRM module, and order status is visible across the company. In addition, automated invoicing helps avoid incorrect customer bills, a top source of tension between a business and its customers.

Strategic Financial Planning and Forecasting

A CFO needs to keep one eye on the rearview mirror and the other on the horizon in order to effectively steer a company’s finances. ERP reporting and analytics provide better visibility into past results, which helps CFOs develop more accurate estimates and predictions to support prospective budgets, forecasts and long-term strategic planning. Automated dashboards and real-time managerial reporting allow more vigilant monitoring of actual results and provide timely alerts if results deviate from expectations.

Enhanced Security and Control

ERP systems provide role-based and individual user authorization to manage access to all the information in the shared database. Doing so enhances security by providing transparency and visibility, but with strong internal controls. Additionally, storing all data centrally reduces the security risks associated with disorganized digital and paper files located across multiple systems and locations.

Scalability and Customization

ERP systems are scalable, meaning that a company can start with a few modules and a small number of user licenses or subscriptions and add more as needed. The finance module tends to be one of the first adopted and can grow along with the business. Examples of this approach to scalability and customization include adding business units and/or subsidiaries, expanding the chart of accounts and ramping up the volume of transactions. A related benefit is the ability to generate and customize reports as new informational needs arise or existing needs change.

Integration With Other Business Modules

Because the finance module is connected to other ERP modules, operational information and other key data become more accessible. This helps make analyses more robust and meaningful and keeps all areas of the company on the same page — no more debating why one department’s numbers differ from another’s. For example, integration with inventory management can make inventory accounting cost flow assumptions easier to calculate and more accurate.

Automate Manual Processes in Finances With NetSuite

A robust financial module is the heart of a good ERP deployment and is often the starting point for businesses looking to choose the right ERP system to meet their needs. Most finance modules will automate tasks, reducing the inefficiency and errors of manual processes, and provide basic GL functionality. Though these can represent significant improvements for the accounting and finance teams, a solution like NetSuite’s financial management module goes beyond simply expediting transaction processing. It covers all the bases, including accounting, AR, AP, cash management and reporting, to help businesses close faster and more accurately. It also lets managers analyze results with robust, real-team reporting capability and role-based dashboards. But NetSuite’s finance module goes further, harnessing the power of integration with a dozen or more additional ERP modules covering every part of business operations: manufacturing, procurement, supply chain management, order management, CRM, HR, project management, ecommerce and marketing automation, to name a few. As a result, NetSuite delivers all the benefits of an ERP system — and with a quicker time to value because it is cloud-based.

An ERP financial module is a powerful tool for managing a business’s accounting, financial and reporting needs. It’s often the first ERP module a business deploys because of its role in helping companies organize and analyze data to optimize operations and maximize profitability. It’s also essential for compliance with regulators, lenders and investors. Integration with other ERP modules is the key differentiator of ERP finance modules, as compared to standalone accounting software. Benefits multiply with the number of other ERP modules integrated, so it’s important to select the right ERP system to align with your business’s needs.

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ERP Financial Module FAQs

How does ERP work in finance?

ERP supports various financial and accounting processes by providing a central repository so that financial data can be aligned with operational data from throughout an organization. It automates accounting transactions relating to receivables, payables, asset management and journal entries, all contained in a general ledger. This information is used for compliance reporting and general business analysis, supporting typical finance tasks, like forecasting.

Is ERP a financial software?

ERP is broad-based software capable of managing all areas of a business through multiple integrated modules. An ERP’s finance module provides functionality similar to standalone financial/accounting software, but it can be integrated with other modules, such as human resources, supply chain management and manufacturing. This enables it to go beyond standalone financial software in terms of automating common manual accounting tasks and aligning financial and operational data.