A healthy finance & accounting department is necessary for businesses of all sizes. Without having a comprehensive outlook of your investments, you cannot make financially accurate decisions. Thus, basic accounting software is a must for companies across industries. It automatically manages financial accounts that eliminate human errors and allows the workforce to focus on other meaningful tasks. The growing demand for accounting software has made it more cost-efficient and has expanded its functionalities. For example, basic accounting software can manage invoices, payments, payroll, purchase orders, and quotes. In addition, thanks to cloud-hosted applications, accounting software can be integrated with third-party applications that can further grow their capabilities.

But is it enough?

Companies need to work on multiple fronts with increasing customer demands and global pressure. Finance & Accounting, although one of the most significant departments in any company, is not the only one. Sales & Marketing, Warehouse & Inventory, Production & Manufacturing, and Customer Service also play an equally essential role.

This article will help you discover the key differences between ERP systems and Accounting software and enable you to choose the best one based on your needs.

What is Accounting software?

The primary purpose of implementing accounting software is to record and safely store financial transactions. The essential modules of accounting software include Accounts Payable, Accounts Receivable, General Ledger, Fixed asset management, Financial Reporting, Purchasing, Budgets & Accounting, Account reconciliation, Cash Flow reports, Balance Sheets, Profit & Loss statements, Income statements, and many more.

Advanced accounting software also provides additional capabilities like quotes, purchase orders, and simple inventory management in some cases. However, ERP software has several functionalities to assist multiple business departments. So, let's move to the next section to understand ERP software better.

What is ERP software?

Enterprise Resource Planning (ERP) is an all-round business management solution that organizes and manages a business' operations in a single integrated platform. Stakeholders belonging to different business departments can create, access, edit, and share critical data anytime, anywhere, and through any connected device. Unlike accounting software, ERP handles multiple departments, such as manufacturing, supply chain, inventory, finance & accounting, sales & marketing, purchase, human resource, CRM, and many more.

ERP provides a shared database that is well connected across each department. Therefore, you no longer need to depend on multiple platforms for managing different functions. Instead, you can make accurate decisions, identify changing market realities & customer preferences, and forecast future trends appropriately through a single integrated platform.

Differences between Accounting Software and ERP

From the above two sections, it's clear that accounting software provides only a handful of features compared with ERP software. While accounting software focuses only on maintaining proper financial accounts, ERP software fills the needs of each business department.

It's a general practice for companies to start their operations by purchasing accounting software. But as companies grow, they find themselves dealing with additional complexities, such as managing multiple currency transactions, multiple subunits spread across various parts of the globe, multi-lingual employees, handling huge volume transactions, security and compliance, cross-referencing data, and integrating finance with multiple business units.

Moreover, accounting software is a generic solution with limited scope for customization and configuration. On the other hand, each ERP system is customized differently based on the challenges of a particular industry. For example, vendors, suppliers, and distributors face challenges related to inventory and warehousing. Similarly, a company belonging to the Food & Beverage industry requires modules such as recipe management, regulatory compliance management, and real-time traceability.

Therefore, basic accounting software is the best alternative for small and medium-sized companies requiring only standard banking, accounting, and limited reporting features. On the contrary, businesses looking to gain significant benefits such as real-time visibility, detailed insights, smart manufacturing capabilities, and intelligent business reports should go for a full-fledged ERP software.

ERP software or accounting software — What should be your final call?

ERP software is built for handling complex business challenges. Ask yourself the following questions before making the final call:
  1. Are you ready to make significant IT investments?
  2. Do you have a big IT team to troubleshoot technical/software problems?
  3. Do you have multiple departments in your company to handle diverse functions?
  4. Do you require intelligent reports and estimate future trends accurately to make correct decisions?
  5. Do you want the software to adapt quickly to your changing needs?
  6. Are changing market trends and customer preferences of significant importance to you while brainstorming strategies?
  7. Do you want to send automatic replies to customer queries?
  8. Do you want to track real-time inventory status?
  9. Do you want to go through real-time sales reports?
  10. Do you want to automate the manufacturing operations?
  11. Do you want software that can automatically send a purchase quote to vendors whenever the quantity of raw materials goes below the set threshold?
If your answer to most/all questions above is yes, you should implement ERP software. It's a comprehensive business solution that will solve all your business complexities, increase your company's efficiency, eliminate human errors, cut operational costs, and help build excellent customer and vendor relationships.

So, ERP software is your best bet if you have immediate plans to invest and grow your business. But, if you are a start-up or running a small business, then accounting software is the best alternative for you.


Nishant Joshi likes to read and write on technologies that form the bedrock of modern-day and age like ERP, CRM, Web Apps, machine learning, data science, AI, and robotics. His expertise in content marketing has helped grow countless business opportunities. Nishant works for Sage Software Solutions Pvt. Ltd., a leading provider of CRM and ERP solutions to small and mid-sized businesses in India.

You can learn more about him on his Linkedin Profile.


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