Understanding the Difference Between ERP and Accounting Software
Both small companies and large conglomerates are thriving equally thanks to today’s technology in the digital era. Few still rely exclusively on pen-and-paper processes, and most have taken the initiative to modernize. Two examples of the most popular business software solutions in the market today are enterprise resource planning systems, or ERPs, and accounting software. By using either solution, a business can upscale its financial abilities to be even more responsive to its customers’ needs.
But one mistake business owners often make is using the terms ERP and accounting software interchangeably. Truly, ERPs and accounting software solutions have several things in common. Both allow for a more digitized and automated working environment for businesses. Both allow for employees to fulfill their duties to the company even on a remote basis. However, they are not exactly the same, and one may be a better fit for your business than the other.
This article will show you what to expect when implementing an ERP system versus implementing accounting software. That should help you arrive at a decision on which of these solutions you should buy for your own company.
Key Differences Between ERP Systems and Accounting Software Suites
The differences between ERP systems and accounting software suites are best explained in four ways: in terms of purpose, functionality, cost, and customization options.
Let’s go through each of them one by one.
Purpose
ERP systems and accounting software are both designed for particular purposes. ERP systems are meant to handle several different sets of business data and can do several business processes all at once. Accounting software, on the other hand, only works with financial data and only addresses the accounting side of the business.
A commonly used example for comparing ERPs and accounting software is Lego blocks. ERPs are like whole Lego houses built out of different Lego pieces. Accounting software, however, is like only one Lego block of a particular size. To make another comparison, buying accounting software is like ordering one dish while buying ERP software is like ordering a full-course meal of different dishes. The latter is meant to be used as all-in-one business software suite, while the former is exclusively dedicated to accounting processes.
Functionality
The next crucial difference between ERP systems and accounting software are their levels of functionality. Accounting software can accomplish tasks usually done by a business’s accounting and finance department. These include monitoring cash flow, handling accounts payable and accounts receivable, and managing ledger and balance sheets.
An ERP system, however, will have an accounting module that can do all of these functions as well as other modules for other business processes. On top of an accounting module, the client business can choose to use project management, inventory management, or human resources modules on their ERP. Simply put, an ERP system can likely do the same accounting functions that standalone accounting software can do, but not vice versa.
Cost
Another important difference between the two is cost. Because it’s capable of doing more, ERP software is likely to be more expensive than accounting software. Whereas you can get accounting software for free or at a minimal cost, you will have to make a bigger investment for an ERP system.
Take note, however, that neither type of service comes at just one fixed cost. Both solutions are commonly sold with tiered pricing for different levels of functionality. For accounting software, you’ll likely have to pay more to get advanced features on your suite. For ERPs, you’ll pay according to the number of modules you’ll use on your system. Whether you purchase accounting software or an all-in-one ERP, take these pricing factors into consideration.
Customization Options
The last difference is in the level of customization that’s possible with the software. In this area, ERPs win by a long shot. By their very design, ERP systems allow business clients to add or remove features as they go. It’s not the same with most accounting software suites, which have a limited number of customization features out of the box.
Lastly, ERP solutions can also be tailor-fitted to the work of particular industries. Your vendor may be able to deliver an ERP solution that’s customized for your home industry, whether that’s food and beverage, retail, or financing. That’s a marketing slant that’s rarely used for accounting software.
Should You Purchase an ERP System or Accounting Software for Your Company?
In truth, the decision to buy either an ERP system or standalone accounting software depends on your business’s individual needs. Say for example you own a company with a very small staff, and your everyday business operations are on the lightweight side. If you only need to upgrade your accounting processes”or can only afford to make accounting your priority”accounting software should be enough. There’s no harm in putting your accounting processes first and rolling out a more inclusive digital transformation plan later, when your business can handle it.
But if you decide to invest in an ERP system that includes an accounting module among its other modules, you’ll be handsomely rewarded for it. Your accounting module, combined with the ERP system’s other modules, will give you a more comprehensive picture of your financial health. Alongside accounting data, you’ll also be able to manage data that pertains to sales management, customer relationship management, and material requirements planning among others. You’ll have a whole-of-enterprise view on your numbers, and not just from accounting data. That level of comprehensiveness should reflect in your business’s next financial strategies.
Hopefully, this article has been useful in narrowing your choices down. May the software solution you choose result in the growth and financial stability of your company!
ANSI is a reliable SAP vendor when it comes to the implementation of ERP software like SAP Business One. If your company is in need of an ERP system to help modernize its processes, then we can help. Visit our SAP Business One webpage and learn more about it.
