ERP VS ACCOUNTING SOFTWARE ?
The wide array of financial software today has blurred the distinction between accounting software and enterprise resource planning (ERP) solution. A lot of people use these two concepts interchangeably, but, technically, they are different.
Knowing the difference between the two may sound trivial, but it’s important for one reason: comparing apples to apples and not to oranges. If you’re unaware of the distinctions, you may be basing your buying decision by matching two different product categories and not the products themselves. Even before sorting out the different types of accounting software or choosing between industry-specific or general accounting software solution, get to know the bigger picture first–what is the difference between accounting software and ERP?
Here’s a quick fix: accounting software is a subset of ERP.
ACCOUNTING SOFTWARE
The term is used to strictly to refer to the financial aspect of your business operations. These include accounts receivable, accounts payable, payroll, and trial balances. Many vendors bundle accounting software with modules for relevant business activities like billing, sales order, purchase order, general ledger, timesheet, expense, and electronic payment.
ERP
An ERP solution can have all the accounting software features plus more. It’s a resource management system that aside from monitoring the business’ financials, also tracks the following: tangible and intangible assets, human resources, and materials. Intangible parameters include working hours, product life cycles, key performance indicators, and customer relations. These are not financials per se, but they impact on the company’s finances; hence, they are essential to your accounting.
INTEGRATION
Most ERP products today are offered with accounting software as an entry-level package. As your business grows, so does your requirement for automating more complex data recording and reporting processes. You can add activity-specific modules; thereby, transforming your accounting software into an ERP.
For example, a popular accounting software suite offers financial management, planning, and budgeting features as its basic package. But the same package can be integrated with other business operations such as project and supply chain management, reporting and analysis, and human resources management. In some cases, an I.T. management module can be added. Each module is usually licensed separately.
So if you’re just buying software strictly for financial management, make sure you’re comparing two accounting software products to get objective comparative results.
THE FUTURE
ERP is fast eating up the market of accounting software products today. Most new product launchings today are ERP, as more businesses demand better integration of their operations. Furthermore, businesses are more intertwined globally today—even a boutique creative agency may have accounts or suppliers in other countries—a situation that an ERP can address better than an accounting software product. But the term “accounting software” won’t likely disappear because users have grown accustomed to using it generically for years now; in short, accounting software and ERP may mean the same thing sooner than later, when both systems are sold as multi-tiered bundles, rather than separate products.
Many businesses contemplate whether to implement an accounting software package or an enterprise resource planning system ,“ERP” in short. Many small businesses do not require a full fledged ERP solution. Most accounting software includes functionality to support business processes, automating your daily work flow and Netiquette provide business functionality to generate sales quotations,track outstanding sales orders, and cash flow management. Most standard modules include account receivables (AR), account payables (AP), general ledger (GL), cash book, inventory stock control, with other modules supporting multi-currency transactions, simple Bill of Material (B.O.M), project management, departmental reports etc.
An ERP system is fully integrated with modules covering Finance, Human Resource & Payroll, Production & Manufacturing, Sales & Purchases, Logistics, E-Commerce, etc. All the processes are integrated to make optimum use of resources to control and track material planning, scheduling, man costs, to produce accurate reports on inventory forecast to meet promised dates for shipping. Other business functions include “Business-to-Business” integration, which is mostly done through an E-Commerce platform.
Having a fully integrated system promises an increase in productivity and the ROI (return on investment) will be significant outweighing costs of labour by achieving better control in inventory management and error reduction in order processes. The initial capital to invest in a fully integrated system may be a big concern for an SME but the ROI (return on investment) will make up for that… Just imagine the amount of time saved by eliminating all these double entries.