There are many differences between an ERP system and standalone accounting software. But despite these differences, there remains a misconception that leaves many people sharing the terms interchangeably. Understanding the differences between these two different types of management software is the first step to determine which is right for your business processes.
While some crossover does exist, the key difference lies in the number of capabilities offered by each solution. Accounting software provides financial management for your organization through accounts payables, accounts receivables, general ledger accounts with reporting, and payroll. ERP software provides multiple modules, including the aforementioned accounting features, as well as applications for supply chain management, inventory management, human resources, and eCommerce.
Accounting software can be thought of as a subset of ERP software. Nearly every ERP will need to include accounting capabilities, on top of the other non-financial tools in order to provide a true enterprise system. Meanwhile, an accounting system will just handle the financial management, planning, and budgeting your organization needs.
In short, an accounting system will only handle one area of your business (financials), while an ERP is supposed to handle all aspects of running your business. Many businesses start with a basic accounting software (such as QuickBooks Online) when new, but grow into an ERP solution for supply chain, inventory, eCommerce, and other non-financial needs that are required in a growing business.
This does not inherently mean that accounting software is for smaller businesses and ERP software is for larger businesses. Many enterprises decide to use a dedicated accounting system that can handle multiple entities or multi-currency accounting. If they do have non-financial software requirements, they may choose to use separate systems that provide these functionalities and integrate them into their accounting solution. Likewise, small business ERP software exists, which is meant to give a growing business a little bit of everything. However, it may not do a sufficient deep-dive into a specific area (such as bank reconciliations) which may leave you desiring a program more dedicated to financials.
Accounting software tracks financial transactions to record profit/loss and better improve business finances and overall cash flow. Core functionalities include general ledger (GL), accounts payable (AP), and accounts receivable (AR). Common additional functionalities include payroll services, billing, project management, and inventory management data.
Accounting systems are designed to be used by your finance teams and accounting departments. Monitoring revenue, sales, and invoicing is part of their daily operations, and accounting software will provide more visibility into the profitability of your organization. Accounting modules such as fixed asset management and billing/invoicing will help streamline certain data collection and processing of key financial information. It will also create key financial reports such as profit and loss statements, balance sheets, and income statements.
Enterprise resource planning (ERP software) is an integrated suite of business applications designed to automate the back-office functions of your organization, including financials, sales, and operations.
This fully integrated solution deals with all of the functions offered by accounting software and integrates them with non-financial tools. This usually includes inventory management, supply chain management, customer relationship management, and warehouse management. These additional capabilities integrated with financials will provide:
The reason more and more businesses continue to blur the lines between accounting software and ERP software is due to the wide range of features both begin to offer. For example, there is no official designation that defines what is ERP software or not. Does accounting software become an ERP software because it adds one piece of functionality? Two modules?
Many businesses are finding that traditional accounting software of the old is becoming less and less prevalent as businesses turn to fully integrated business management software to meet their needs. While part of this movement could be blamed by the ERP vendors of the world attempting to upsell more capabilities, most businesses are more than satisfied using a unified system with end-to-end capabilities. However, if your business prefers keeping track financials separate from other areas of your business, or has unique financial needs that can only be handled in a dedicated accounting system, then a stand-alone option will be for you.
Looking for an ERP system for your organization? Check out our list of the best ERP software. Or get free help from one of our software advisors.