Financial accounting software was one of the first software applications applied to business and has developed over the past 30 years to become very functionally mature. The following are some of the key functionality that should be considered as you evaluate financial accounting software and provides a vision of some of the capabilities offered in modern financial accounting software packages. Remember to focus on the key differentiators that are most important to your organization and refer back to our software selection methodology that will help you through the software evaluation process.
- Chart of Accounts Structure. Financial software offers any combination of numeric/alphanumeric account codes and a nearly unlimited number of characters, segments and attributes. This has greatly increased the flexibility of the general ledger particularly with regard to the setup and tracking of subsidiaries, departments, and projects. New general ledger accounts can be added at any time, offering flexibility after the initial setup of the software.
- Dimensions. Some software vendors offer dimensional charts of accounts. This means that data elements can be defined independently offering greater flexibility for data entry and data inquiry/reporting purposes. Dimensions can be viewed as one or several individual layers of details. Unlimited dimensions can be set up or added at any time that track multiple companies, offices, divisions, departments, vendors, customers, projects, or any other data element. Formerly complex multi-country/company/currency issues can be handled easily by setting up relationships between the data elements.
- Multi-Currency. Robust multi-currency capability is quickly becoming standard functionality for financial software. Multi-currency offers the ability to track transactions in both the home currency and foreign currencies. It also includes the ability to maintain general ledger information in two currencies and run reports on both currencies simultaneously.
- Multi-Company. There are two approaches to multi-company functionality. Some financial software provides strong multi-company capabilities within one database allowing for easy setup and maintenance of the companies and inter-company transactions and rollups. This includes the ability to handle multiple fiscal years for the different companies and share suppliers and customers across companies. Other financial software offers this capability by setting up separate databases for each company, effectively running the software independently for each company. Although this approach is not as automatic as the first approach, it works well for companies with less complex requirements that do not need the sophistication of the previous method.
- Budgeting. For more sophisticated budgeting requirements, specific budgeting modules are available. These systems not only provide the ability to build different types of budgets (e.g., top down, bottom up, zero-based, rollover, etc.), but also provide tools in assisting the budget creation process. For example, they may import information from budgets created in Excel, or provide online review and sign-off of budgets by supervisors or executives, which then roll the approved budgets into a single corporate budget. Some of these capabilities include budgeting of both financial and operational (non-financial) data, including budgeting the number of units to be produced in a year, or full-time equivalent employee information for the human resources/payroll system.
- Workflow. Workflow is the ability to route documents electronically for sign-off to appropriate personnel. For example, an invoice can be routed to a supervisor who can then apply an electronic signature for approval of payment. Additional features allow escalation rules on approvals for dollar amounts. This allows authorization and sign-off of transactions by employee type. The software allows automatic routing of the invoice to the appropriate person or group for approval.
- Purchase Requisitions. Workflow capability is also very important in the purchasing module. Purchase requisitions can be routed electronically to appropriate approval personnel. The approved requisition can then be automatically converted to a purchase order and printed or sent out electronically to suppliers. This capability has greatly improved the efficiency of the purchasing process and has significantly reduced the cost of generating purchase requisitions and purchase orders.
- Vendor Metrics. One of the most powerful capabilities of purchasing software is the ability to track vendor metrics. The software tracks information from the receiving module, purchasing, and accounts payable modules to create a view of the metrics of your suppliers including quality control inspections, on-time performance, product cost information, RMA performance and disposition, and other information. The great benefit of having this information is that it allows you to measure the cost and reliability of your suppliers. This can then be used in negotiating contracts with suppliers and providing comparison information to other vendors.
- Fixed Assets. Many financial software vendors offer a fixed assets module, while others integrate with standalone fixed asset products. The advantage of using fixed asset software is that you can purchase, set up, and track fixed assets automatically. The software offers flexible depreciation schedules and reporting capabilities.
- Internet Portals. Internet portals offer the ability to increase customer and vendor interaction with your company. Special web pages can be set up to enable secure access to portions of the financial software for employees, customers, and suppliers. Examples of these portals include online customer visibility of order status, and vendor self service which allows a vendor to view new purchase orders online and track the status of an invoice payment.
- Reporting. Perhaps the greatest advantage of modern financial systems is their flexible reporting capability. Relational databases now allow easy storage and reporting of financial information. Ad hoc report writers enable financial accounting information to move from the role of a snapshot of historical information to the more proactive role of providing real-time information with which management can make both tactical and strategic decisions.
If you have questions regarding your specific financial/accounting software evaluation project, feel free to give us a call at (425) 216-4030.