What is a Financial Management System?

What Is a Financial Management System?

The digital engine of accounting and finance that tracks and analyzes an organization’s money using financial management software.

 

From Back-Office Accounting to Modern Financial Agility

Designed for creating, connecting, storing, and reporting many different types of finance transactions, a inancial management system ultimately has one core purpose: counting money.

Quite simply, without some kind of accounting software, an organization would not survive. At the most basic level, every organization needs systems to manage the flow of money in and out of the business. But a truly effective financial management system can do more: optimize profitability, measure cash flow, determine tax obligations, ensure compliance, and maintain long-term enterprise sustainability.

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Core Benefits of Accounting Software

Financial management software includes the tools and processes that manage and govern income, expenses, and assets. An overarching goal for any financial management solution is to not only maintain an organization’s daily business, but to maximize profits and continuously protect financial data from fraud and theft. At a basic level, an accounting system provides the following benefits:

  • Error-Free Financial Stewardship—Today’s organizations need more than a digital version of tactical bookkeeping with spreadsheets. Beyond just recording transactions, financial management software should help finance teams maintain their fiduciary stewardship, reducing accounting errors, shortening invoicing cycles, complying with ever-changing tax laws and regulatory requirements, and optimizing daily, monthly, and yearly cash flow.
  • Compliance with Current and Future Accounting Standards—National and international accounting standards set rules for private and public enterprises. With set rules, definitions, and processes, these standards normalize financial information. But these standards change frequently. In the last few years, new standards have come into effect, including IFRS 15 and ASC 606. A financial management system should be able to handle the latest accounting standards, with the flexibility to adapt to new changes as they are adopted.
  • Accurate Financial Data—Financial software should do more than just basic accounting; it should be able to help organizations to: Reduce records redundancy, deliver better budgeting, forecasting, and planning, enable a thorough and properly categorized expense management, provide seamless integration into banking systems, enable more accurate audits, and keep detailed tracking records of all assets and liabilities.
  • Data and Systems Security—The accounting, finance, and audit activities must also offer comprehensive systems security with absolute data integrity integrated across the entire financial management solution.
  • Connected Enterprise Operations—For larger companies, financial management software is part of an enterprise resource planning (ERP) system that connects financial and other data across inter-company, inter-plant, or inter-division boundaries. Consolidating financial data aligns corporate processes and reduces complexity.
  • Scalability for Growth—As companies grow, their systems and processes increase as well. Which means that their financial management software must have the ability to rapidly and easily scale to handle growth—across markets, geographies, and products.
  • Strong Internal Controls—As money is tracked and managed across the enterprise, financial management systems should help protect critical data against theft, fraud, and other criminal mischief. When financial management solutions include risk and compliance management, companies can leverage these capabilities beyond audit trails and error checks to include the segregation of duties and mapping of roles to responsibilities across the enterprise.

Core Functionality of a Comprehensive Accounting System

Financial management systems deliver accurate financial information across the organization. By leveraging this data, financial management software can further help organizations in the following functional areas:

  • Ledgers: General Ledger (GL) and Sub-ledgers

    • Ledgers—especially the general ledger—are the core component of every financial management solution. Their design and capabilities are critical to overall functionality across the complete financial management software suite.
    • The GL is the primary ledger and provides a master line-by-line collection of all completed financial transactions. For each transaction, GL records usually include: the associated amount, account, date, description, transaction number, and type.
    • Financial management software should include sub-ledgers to the GL, aligned by divisions, plants, locations, countries, or major projects. Sub-ledgers improve accounting accuracy and financial transparency for tax payments, budget and finance planning, as well as financial analysis and reporting.

  • Accounts Payable (AP) and Accounts Receivable (AR)

    • Accounts payable and accounts receivable drive debits and credits across financial management systems.
    • The ability to quickly and accurately process payables and receivables impacts cash flow, month-end close, year-end close, and most periodic financial processes. Connecting to OCR and other automation technologies speeds processing and improves accuracy of AP and AR processing.

  • Asset Management

    • For complete financial statements, knowing the value and condition of assets is a requirement for inventory management. Financial management software needs capital and operational data with descriptive information related to assets to deliver accurate financial statements related to appreciation and depreciation.

  • Collections Management

    • Managing collections involving suppliers and customers is an important financial management software capability. With comprehensive collections management, it is easier to rank customers, establish collection strategies, manage collection payments, and initiate late-stage collections for bankrupt customers.

  • Employee Expense Management

    • Generating and processing employee expense reports is a core requirement of a financial management system. Key functionality should include the ability for employees to make self-service entries and map those expenses to projects and travel accounts.

  • Reporting and Analytics

    • Retrieving, organizing, and analyzing data from financial management solutions provides meaningful insight into a company’s operational performance and point-in-time financial situation. To be most effective, financial management software should have embedded native reporting solutions.
    • When financial management solutions also provide multidimensional reporting platforms with self-service reporting and data visualization capabilities, companies can further improve their financial performance by giving users access to real-time information.

  • Revenue Management

    • Revenue management applications in financial management systems automate and audit compliance with standards and regulations like
      ASC 606 and IFRS 15.

  • Risk Management

    • To monitor and protect companies from internal and external theft and fraud, financial management solutions offer internal controls and audit tools to manage segregation of duties (SOD) and payment rules.

Reports Needed from an ERP System

Most financial management systems do a good job of providing dynamic visibility into enterprise data. In the last century, ERP software excelled at capturing very large sets of business data, but had difficulty producing reports. That was then.

Today’s organizations want the ability to put their financial data to use to improve profitability, streamline operations, and improve decision-making. In recent years, capabilities for reporting and other data output and monitoring have become much more important to organizations. Reporting requirements for financial management systems have rapidly evolved to keep pace with that demand.

At a minimum, all companies need reports that cover month-end close, quarter close, and annual close, along with basic financial statements for income, expenses, and balances. While these outputs were always available, it wasn’t easy to adjust these reports or add derivations for other needs.

In our fast-paced business environment, the ability to generate prebuilt reports as well as easily create ad-hoc outputs, isn’t just something that’s nice to have—it’s a critical requirement for financial management systems software. Add in requirements for in-depth data analysis, information visualization, more operational visibility, and narrative reports, and companies quickly discover that their ERP software solutions need to easily work with advanced reporting systems like enterprise performance management (EPM) solutions.

 

Better Performance and Financial Planning

Ideally, a financial management system does more than just manage the monetary mechanics across debits and credits and publish a few reports.
A well-designed financial management system improves business performance and profits by streamlining operational processes and aligning them to best practices. It also helps employees be more productive as they invest their time and effort into strategic (rather than tactical) activities that can transform companies and institutions.

Beyond the General Ledger

As organizations add new markets, expand into new geographies, and adapt to marketplace disruption—especially if they are the disruptor—their financial management solutions must rapidly scale to accommodate added legal and reporting requirements, additional assets, new short-term and long-term liabilities, more qualified suppliers for goods and services, and infrastructure that addresses employee payrolls and policies in different countries.

Planning for the Next-Generation Workforce

As today’s workforce starts to retire and millennials are recruited to take their place, attracting the next generation of employees becomes a priority. Financial management systems must also meet the expectations of a digital workforce, with an intuitive user interface, easy-to-use design, as well as embedded social media and other social tools that millennials have already embraced.

Oracle’s Modern Software and Solutions for Financial Management Systems

Oracle delivers modern, cloud-based financial management solutions that help organizations compete in a digital economy. These comprehensive solutions include the following capabilities:

  • Revolutionary Reporting—Robust, real-time reporting for prebuilt and ad-hoc reports, along with prebuilt integrations into Oracle EPM Cloud applications. With more agile and accurate reporting, companies can move beyond disconnected spreadsheets and fragmented reports to respond faster and align planning across the enterprise.
  • Secure and Global Infrastructure—Embassy-grade security through an Oracle owned, designed, and managed global infrastructure, utilizing state-of-the-art data centers built with Oracle’s industry-leading database. By leveraging this infrastructure, Oracle financial management solutions fully support requirements for in-country data residency.
  • Extreme Scalability—Oracle's cloud solutions deliver high-volume, high-velocity scalability. During testing, complex sets of financial transactions were clocked at over 360 million transactions per hour.
  • Comprehensive Financial Management—Oracle delivers the most comprehensive financial solutions available, with applications for core accounting and finance, expense management, risk management, compliance, direct and indirect procurement, and project portfolio management (PPM).
  • Intuitive User Experience—Backed with modern design paradigms and social tooling, Oracle delivers a modern user experience that helps maximize productivity and encourage collaboration.
  • Complete End-to-End Enterprise Solutions—Eliminate data silos, capture better business insight, and build consistent workflows throughout the enterprise with prebuilt, native integrations to all common business functions including: human resources (HCM), supply chain management (SCM), manufacturing, sales force automation (CRM), and services support.
  • Best Practices—Covering more than 180 business processes, Oracle Modern Best Practice improves financial agility. Oracle financial management software is aligned with these game-changing processes to help organizations to accelerate productivity, reduce close times, discover real-time insights.

Cloud Considerations for a Modern Finance Management Solution

In addition to the design principles mentioned above, there are three core operational concepts that are driving the move of financial management software from on-premises to the cloud. They include:

  • Software that works; not software than makes work—Old school financial management systems required a lot of maintenance from staff and consultants. These on-premises ERP and EPM packages constantly needed bug fixes, patches, and upgrades—often involving back-to-back projects to stay current and secure. With cloud-based financial management software, the heavy lifting of tracking, diagnosing, installing, and testing fixes shifts from customer to vendor. Instead of having you work continually to fix the system, the system continually works for you.
  • Avoiding expensive diversions—Legacy systems require a great deal of time, effort, and money just to keep them running. With cloud-based financial systems, upgrades, disaster recovery, hardware refreshes, backups, and custom code management are all handled as part of the service.
  • No more shelfware—The old practice of buying extra licenses for future users and potential projects ends with modern financial management software. With the cloud's SaaS subscription model, companies use the licenses they need and add more users or products as they grow. Capital expenses for shelfware is another IT relic consigned to the computer science practices of the last century.

The Cloud Is Driving Next-Generation Financial Management Systems

Clearly, financial management solutions have evolved to meet the demands of a digital world. And the cloud has been key to this transformation. The cloud has elevated ERP and financial solutions from basic, back-office accounting software to a comprehensive, mission-critical, integrated solution designed for innovation. As companies encounter new disruptive forces and competitive pressures, modern financial management systems built for this new normal can enable them to achieve financial strength for the future.

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* Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

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