what-challenges-have-erp-systems-thrown-at-financial-management

what-challenges-have-erp-systems-thrown-at-financial-management

discover | Monday - 25 / 12 / 2023 - 7:05 pm

There is no dispute that, the financial management is the core of every successful organization or institution. Accurate financial statements, efficient operations and well-informed decision-making are not only essential but they are the lifeblood of any organization which seek to grow – or rather survive – in today’s market.

The World is no longer a small village but a digital home within which businesses face increasingly complex financial challenges such as managing multi-currency transactions and ensuring regulatory compliance.

Here I’d like to create a new saying which is “If you can’t keep up with them, then you’ve to change the rules of their game!”. So together in this comprehensive guide, we will delve into how an enterprise resource planning (ERP) system is revolutionizing the way you manage your organization’s finances.

Financial management game for everyone:

Whether you are a small startup looking to automate the accounting processes or whether you are a large corporation that seek to enhance the financial visibility and control, you will find ERP systems to be your best ally.

But why have companies been losing at the financial management game in the past?

Let us admit that the challenges that organizations faced in the pre-ERP era were difficult, for example:

– Traditional financial management often involved a series of disjointed processes [relying on separate databases which led to the emergence of data silos which in turn hindered communication and collaboration].

– Relying on manual data entry.

Manual data entry was error-prone, time-consuming and often damaged your company’s reputation.

– Relying on independent accounting programs so that financial reports are issued by different departments – which in turn makes it difficult for decision makers to access insights in real time -.

According to the above, it becomes clear how ERP systems excelled in the financial operations stage.

Accounting is the first “beast” of the financial management game but ERP systems have no trouble getting around this beast. Here’s how to do it simply:

– Automation of the data entry process by collecting financial transactions from different sources, such as invoices, purchase orders, and sales orders. This automation reduces the risk of manual entry. The automation speeds up the process of recording financial statements.

– Real-time general ledger updates. The general ledger is the central repository for all financial transactions within the organization. Real-time general ledger synchronization with every transaction will keep account balances, trial balances, and financial statements always up to date, which in turn provides an accurate financial ground to stand on at every moment.

Financial Reportings and Knockout:

Enterprise resource planning (ERP) systems provide powerful financial reporting capabilities. Users can create and customize a wide range of reports such as income statements, balance sheets, cash flow statements, and financial ratios.

ERP systems have balanced accounts payable and receivable. You can understand what we mean here as it is enough to transfer an item to the wrong account and everything will literally collapse!

Here’s how ERP systems keep you balanced:

Accounts payable:

ERP systems automate accounts payable processes by matching purchase orders, invoices and receipts, and simplifying invoice approval and payment. This automation not only reduces the risk of overpayments or duplicated payments, but also ensures that suppliers are paid on the correct dates which will result in favorable payment deadlines.

Accounts receivable:

Beyond managing customer invoices, tracking payments, and streamlining collections, ERP systems help you set automatic alerts and reminders to ensure overdue invoices are followed up on time. This proactive approach can improve cash flow and reduce the risk of bad debt.

We can’t play with the budget. ERP systems ensure that your budget is not tampered with in several ways:

– Providing a forward-looking vision of financial performance: ERP systems integrate data from various departments, and thanks to this integrated data, you can ensure that planning the company’s financial future is based on accurate and up-to-date information.

– Planning for various emergency situations: ERP systems offer the advantage of creating multiple budget scenarios to explore different financial outcomes. The value of this particular capability is demonstrated amidst uncertain economic environments (coronavirus pandemic is an example).

– Matching numbers with actual reality:

Using real-time financial data, organizations can compare their actual performance with budgeted numbers. By this way we can identify deviations in the budget – if deviations occur -. Deviations can be addressed quickly and we can ensure that the company stays on track to achieve its financial goals.

Financial regulations and systems (the real beast in the game):

You can consider all of the above challenges as a game compared to complying with financial regulations and reporting standards imposed by authorities. Failure to meet these requirements could result in legal repercussions, fines and damage to the company’s reputation! The problem is that compliance with financial regulations and reporting requirements is a multi-faceted challenge, but – luckily – the solution lies in the hands of enterprise resource planning (ERP) systems.

Consolidated reports:

ERP systems come with standardized financial reports that comply with regulatory standards and this simplifies the process of preparing financial statements for regulatory bodies. By this way, we reduce the risk of errors and discrepancies.

Timely submission of requests:

Enterprise resource planning (ERP) systems can be set up to generate and submit regulatory reports within specific time frames. This ensures your organization meets the deadlines of requests so penalties can be avoided.

Complete preparation for the audit:

Enterprise resource planning (ERP) systems make it easier for government financial auditors to access and review financial statements, audit trails, and compliance documentation, speeding up the overall audit process.

Will ERP systems be ready for the challenges of the future stages?

As technology continues to evolve, so too do enterprise resource planning (ERP) systems and their impact on financial management. Here are some of the future challenges that ERP systems will overcome:

– Artificial Intelligence and Machine Learning:

Artificial Intelligence (AI) and machine learning are making their way into enterprise resource planning (ERP) systems. Artificial Intelligence (AI) and machine learning play a role in enhancing ERP capabilities. We expect to see AI-powered features such as predictive analytics for financial forecasting, intelligent automation of routine financial tasks, and natural language processing for more user-friendly interfaces.

– Cloud ERP solutions:

We expect the shift towards cloud ERP solutions to continue due to the following reasons:

1- It provides scalability without the need for new hardware (this means reducing IT infrastructure costs while providing access from anywhere and at any time).

2- Integration with new technologies:

ERP systems will increasingly integrate with emerging technologies such as Blockchain and the Internet of Things (IoT). This integration will enable to enhance supply chain insights, secure financial transactions, and real-time tracking of physical assets and supply.

3- Data security and privacy:

As data breaches become more common, ERP systems will focus more on data security and privacy. More stringent security measures are expected including encryption, multi-factor authentication and compliance with data protection regulations such as the General Data Protection Regulation (GDPR).

4- Mobility and remote access:

In a world where remote work is widespread, ERP systems will prioritize mobility and remote access. Responsive mobile applications and web interfaces will allow employees to access financial data and perform tasks from anywhere in order to ensure business continuity.

Conclusion:

Enterprise Resource Planning (ERP) systems continue to evolve to meet the changing needs of financial management in a dynamic business environment. Staying informed about various trends and considering their potential impact on your organization will be crucial to future success.