Although there is some crossover between accounting software and ERP – Enterprise Resource planning, these two are different. ERP is a resource management system with several functionalities, and it’s not limited to accounting and financial reporting.
It includes different functional modules like procurement, manufacturing, inventory management, order management, supply chain management, warehouse management, customer relationship management, service resource management, workforce management, marketing automation, etc.
On the other hand, accounting software’s functionality is limited to accounting-related tasks’ performance. Although, accounting software provides the facility to connect operational tasks with automated accounting to some extent.
For instance, accounts receivables, accounts payable, payroll, leases, cash and bank, and entries related to accounting adjustments can be posted in the accounting software when some operational actions are performed.
For instance, if you send a sales invoice to Mr. Joy through accounting software, the operation of sending the sales invoice is automatically posted as sales are credited, and accounts receivable from Mr. Joy are debited without requiring manual input from an accountant.
So, accounting software can be an excellent tool to manage the accounting department, but ERP manages broader business aspects.
Let’s understand the main differences between ERP and accounting software in some detail.
1- Industry-specific needs
Different businesses have different operational modules for the effective management of activities.
For instance, operational modules required for the retail industry are much different from the functional modules required in the manufacturing sector.
So, the operational software needs to be flexible enough to adjust in both industries. This level of flexibility is offered by the ERP, where functional modules can be designed in line with the needs of the business.
Although accounting software like Quickbooks, Xero, and Wave accounting use cloud servers to store the data fetched from anywhere, their customization is limited; on the other hand, ERP is highly flexible and can be customized to meet the needs of your industry.
2- Scope and functional modules
An ERP system contains complete integration of accounting activities like sales, CRM, finance, purchase, production, operations, warehousing, financials, human resource management, etc. Different procedural activities and controls can be implemented in the sales module.
For instance, the sales module can help send quotations, order processing, invoicing for the goods dispatched, activities related to delivery controls, return, crediting, sales forecasting, and all aspects of the sales.
Similarly, the operations module may include different operational reports, workflow analysis, employee data management, and reports on the efficiency and management of the different operational activities.
CRM – Customer relationship management module includes functionalities related to improving customer experience.
It helps track the activities related to customer contacts, warranty details, service contracts, service level agreements, contact details, service calls, and other details related to customer experience and feedback. So, this can help the business to take care of the customers and improve relations with them.
Similarly, the warehousing module can help to record stock transfers, inventory valuation, tracing, picking, packing, and delivery of the goods. Lot management and serial tracing can be performed to manage inventory functions effectively.
Likewise, the purchasing module can help collect quotations, get approvals, record invoices, returns, crediting, purchase forecasting, etc. In addition to this, the production module can be used to speed up production with intact controls.
For instance, bills of material, production orders, forecasting production level, and material requisition can be analyzed and tracked very effectively.
The biggest charm of ERP is the integration of activities at an enterprise level. For instance, the sales module can access details for the forecasted production, although selling and production are two different departments.
On the other hand, accounting software offers limited functionalities related to financial reports that bring efficiency to the accounting department.
On the other hand, ERP helps to integrate and automate activities at an enterprise level. So, ERP has a much wider scope (because of the higher scope) than accounting software offers.
3- Real-time data
ERP is an end-to-end process which means all of the modules are updated in real-time. So, it offers great help in tracking different business activities like orders, deliveries, customer response, inventory, purchase tracking, payroll, employee management, and many other functions.
This real-time data update provides a strong ground for decision-making that not only helps to eliminate redundancy but helps to track profit.
However, real-time data update is available in the accounting software but is limited to accounting functions only.
4- Assets management
The asset management modules help to enhance the efficiency of the assets leading to a reduction in downtime, maximizing return on assets, making informed decisions about the use of the assets, improving the predictability of the performance, and improving up-time for the performance of the asset.
Further, managing the assets in one place makes it easy to improve performance, leading to enhanced profitability.
Asset management is the feature of ERP and adds extraordinary value, especially if your business is an asset incentive.
5- Competitive Edge
These days, the business environment is highly dynamic and keeps changing with time. So, it’s desirable to have a flexible business management system that can be customized to the increasing needs of the business.
That’s the clear advantage of the implementation of the ERP.
Further, ERP keeps technology aligned with the business operations, which is vital for quick customization and meeting the demands of the changing business needs.
In addition to this, ERP seamless integration across different resource planning software modules helps reduce operational time and the manual work that consumes sufficient time. Further, integration ensures a reduction in chances for errors.
Similarly, ERP offers advanced reporting features and a dashboard that help trace key performance indicators and improve labor management, understand how to improve productivity, control waste, and improve the business’s overall profitability.
Hence, the implementation of the ERP provides a competitive advantage to ensure the business’s success, which may not be achieved with accounting software.
Bottom line
ERP is an advanced management system for monitoring and controlling business activities at an enterprise level. There are different modules of the ERP that are seamlessly integrated and help in the performance of business activities.
Businesses with implemented ERP have a competitive edge in terms of efficient business processes, availability of real-time data, speedy posting of end-to-end transactions, and effective entity and activity level control implementation.
On the other hand, accounting software is limited to the activities of the accounting department, although some integration is possible with sales, purchase, payroll, and other functional areas.
Frequently asked questions
Should the business implement both accounting software and ERP?
If you have implemented ERP in the business processes, there seems to be no need for accounting software.
The ERP system contains comprehensive, integrated modules, including accounting functions. So, the need for accounting can be fulfilled with the implantation of the ERP. Hence, there is no need to implement accounting software with ERP.
What does it mean to state ERP is an end-to-end business solution?
It means all functional modules of the ERP are highly integrated, and action performed in one module is reflected in other modules.
So, the transactions posted in one module can be reflected in every business management system (where it has an impact).
Which is better, ERP or accounting software?
Whether you should opt for ERP or accounting software depends on the business’s needs. For instance, if your business is large or expected to grow and needs some integrated system for controlling and monitoring different business functions. It’s advisable to adopt the ERP.
However, if your needs are limited to accounting and you need to implement a managing system at the level of an accounting department. In this case, accounting software can be a better option as ERP incurs a higher cost.
Why are businesses moving for ERP?
The beauty of ERP is flexibility, and a high level of customization is possible with it. So, in today’s dynamic world, different business aspects like consumer preference/changing consumer needs, changing markets, increasing competition, increasing regulations/compliance, increasing international expansions, greater centralization, and complex reporting requirements attract businesses to implement the ERP.
It makes tracking things easier and enables the business to take immediate action.