The accounting and finance component of enterprise resources planning (abbrev. AF/ERP) allows a company to effectively manage its accounting and financial data. The component allows specific aspects of accounting and finance to be integrated into the company’s management system so that information can be provided to the appropriate channels. This allows tremendous value as the information from AF/ERP can be used for a wide variety of business related analysis and decisions.
AF/ERP takes standard accounting processes, such as accounts receivable (A/P), accounts payable (A/P), general ledger (G/L), sales revenue, purchase orders, trial-balance, and allows the cumulative information to be used for decision making purposes.
AF/ERP became necessary as companies were looking more towards financial data to make effective decisions. As ERP became more in demand due to its wide-ranging capabilities, the accounting and finance component had a natural integration towards ERP.
Difference between AF/ERP and standard accounting software and systems
What makes AF/ERP differ from traditional accounting systems is the customization and maximizing the functionality of accounting information. Typical accounting software will gather data throughout the year and produce a year-ending financial statement, show account balances, and how much cash a company may have. For most companies, the information may be sufficient, but AF/ERP goes beyond standard accounting systems.
To highlight this difference, a hypothetical model will be used. A business maintains its accounts receivables through a standard accounting software such as Quickbooks. A user of Quickbooks will be able to record AR transactions, see balances, and make decisions based on the recorded information. For example, if a subsidiary AR account has a balance that has been the same for a period of six months, the Quickbooks user will need to make a judgement to determine whether the AR account is delinquent and if a company representative may need to contact the customer. In essence, the information provided by standard accounting systems does not facilitate decision making because the user has to make the call.
AF/ERP goes beyond the standard accounting software. An AF/ERP based system could handle AR in numerous ways. The system can very well analyze the company’s entire AR accounts to determine customers who have timely paid off their purchases. Consequently, an AF/ERP system can recommend credit increases to the customer to allow a possible increase in sales transactions between the two companies.
Budgeting and Planning
A useful component of AF/ERP that influences decision-making from a vertical perspective is budgeting. By looking at the sales revenue, AR, and cash sales accounts, managers can make a decision gathered from the information to forecast future sales and determine whether the company can meet future targets. AF/ERP facilitates the process through customization. The AF/ERP user can summarize and present the information so that managers can efficiently understand them without having to be experts in accounting and finance.
ERP softwares with AF/ERP components
A leading AF/ERP software in the market is Netsuite from Oracle, which is a comprehensive web-based software. It is also a cloud computing software, which combines online management of the software and company managed database system. In other words, users access Netsuite over the Internet, but the company stores the database on their servers that they own and manage. Netsuite Financials is the AF/ERP component and integrates accounting and financial information to the rest of the ERP system.
Oracle's main competitor in the AF/ERP software market is Dynamics ERP from Microsoft. This is comprehensive ERP software that integrates accounting and financial information to the rest of the information system. Dynamics comprises of four separate products AX, NAV, GP, and SL. The two softwares that especially utilizes accounting and finance information is NAV (formerly Navision) and GP (formerly Great Plains). Both were leading accounting information software before being bought out by Microsoft.
Another ERP software with a strong AF component is OpenPro, which is an open source, web-based ERP software that is run on linux. This software being an open source software allows further customization for businesses.