What is the difference between ERP (Enterprise Resource Planning) and Accounting Software?
While Accounting Software has almost always been considered a necessity, ERP (or Enterprise Resource Planning) is increasingly taking over that baton- indeed many use the term interchangeably. But Accounting Software and ERP systems are not the same things, although one may be absorbed by the other. Below we discuss the main differences between accounting software and ERP.
Traditionally, accounting software has been used to, as the name suggests, manage a company’s accounts, ‘books’ or simply how money moves and is spent and earned. Accounting software deals with the financial aspect of a company’s operations by recording business transactions. Accounts payable, accounts receivable, payroll, general ledger, sales orders, purchase orders are all modules contained in accounting software to produce basic financial reports like income statements and balance sheets. Accounting software provides an assessment of a company’s current financial health and determines profit, loss, and assets status.
Enterprise Resource Planning Software (ERP)
An ERP software is a total business management software solution, in which accounting software is just one aspect, although a significant one. ERP is software that is developed for company-wide management, providing reliable information for all departments. ERP controls and tracks all aspects of your business activities in a single system and helps provide management with an overall ‘big picture’ view of their business at any point in time- while also assisting in forecasting future trends. ERP incorporates accounting functions, demand, and supply forecasting modules, logistics, dispatch, stock control, warehouse management, project management, and even human resources management in one large interconnected system.
Accounting Software is just one piece of a big ERP system
If ERP is a Lego model, then Accounting Software is one important block. Accounting Software will generally only get involved from the Point of Purchase or Sales invoice. An ERP system can track a customer even before they become a customer! An ERP lead management module, as well as a CRM module (Customer Relationship Management), can track the sales process and track back which salesperson or marketing event was responsible for the sale. An ERP system can track beyond the sales transaction to repairs, customer relationship management, and future purchases.
ERP systems are used by the entire organisation
Where an accounting software system is used almost exclusively by financial managers, accountants, and bookkeepers- an ERP system is one that is used across an entire organization. ERP systems can be used by sales teams to ensure sufficient stock for a deal that is about to be concluded. Demand managers can access sales forecasts in order to plan manufacturing or stock replenishment. As soon as a sales invoice is raised by the accounting module, the supply chain team, warehousing team, dispatch team, and management have instant visibility on the transaction and can plan accordingly- without manual notification. Similarly, the ERP system feeds back into the accounting software module in terms of stock on hand and assets. This helps in terms of inventory holding costs and asset management from an accounting perspective.
The choice is based on a business’s needs
Before deciding if your company needs an accounting system or an ERP system you first must first decide what your company’s requirements are. Is the size and scale of the business such that all that is required is automation and control of the accounting process? In which case, a sole accounting software solution will fill the gap. Or does the business have more advanced needs and control requirements such as manufacturing, advanced stock control, and customer relations- in which case an ERP system is more appropriate? A small business may also feel that growth is anticipated and so may feel that a scalable program is best for them- something that starts out with more basic accounting functionality but that can be scaled to include ERP functionality as and when required.
The lines between ERP and Accounting software are becoming increasingly more blurred. Functionality that used to be seen as an ERP luxury is now being seen as a basic business necessity. Accounting Software is a core module in any ERP system, but an ERP system is not limited to assisting your business simply in the field of financial accounting and record keeping.