In the dark ages of financial management software there were only spreadsheets, prone to corruption. Today there is a wide range of enterprise resource planning (ERP) tools for financial management. This financial management guide describes the basic structure for financial ERP.
General ledger is at the core of any ERP financial management system, which encompasses the functions that are required to maintain one or more sets of books, generate financial reports, manage cash and fixed assets and execute payment and receivable transactions.
"Everything starts by having a general ledger and then it works its way out to accounts payables (how you pay vendors) and accounts receivables (how you collect from customers)," said Ray Wang, senior analyst, Altimeter Group.
The basic components of a financial management system include:
- General ledger, which represents the core set of books for a business entity
- Accounts payable, which disburses money to vendors
- Accounts receivable, which processes incoming cash
- Fixed assets, which inventories capitalized property
- Financial reporting, which summarizes the results in standard reports such as trial balances and account details
Many ERP financial management systems also include modules such as treasury management, which can include lock box, revenue flow, cash flow, account balances, fund transfers and tax assessments. A cash management module allows you to create an optimal payment/collection schedule. There's also business intelligence (BI) functionality and controls for governance, risk management and compliance (GRC). Project accounting offers a report structure based on hours consumed.
More on ERP modules
According to Forrester Research analyst Holger Kisker, ERP financial management software should include features that support creation of ad hoc reporting as well as month-end closing, quarter closings and year-end reporting.
"Since it's tracking every movement in and out of the warehouse, it can deliver at any time clear value of what's in stock," said Kisker. "The financial module (should) follow every individual step, including budget planning for production and billing."
ERP finance modules can also help you meet Financial Accounting Standards Board (FASB) standards. Another benefit is systematic automation of data on transactions such as warehouse inventory or the number of days accounts receivables have been aging.
"Essentially, it's giving you all the financial data that you need to run a business," said Wang.
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About the author: Catherine LaCroix is a freelance writer based in Portland, Ore. She covers technology used in business, education and healthcare.