A financial management system is the software and processes used to manage income, expenses, and assets in an organization. The purpose of a financial management system is to maximize profits and ensure long-term enterprise sustainability. They help finance teams:
- Streamline invoicing and bill collection
- Optimize daily, monthly, and yearly cash flow
- Maintain audit trails and comply with accounting regulations
- Automate finance processes and reduce accounting errors
- Deliver better budgeting, forecasting, and planning
- Speed up financial close and reporting activities
- And much more
Financial management software consolidates financial and operational data and provides teams with a comprehensive view into the business. Increasingly, CFOs are choosing cloud-based ERP and financial management systems that can rapidly scale to handle growth and provide functionality for different geographies, languages, currencies, and regulations. Sometimes additional capabilities are needed – such as more powerful analytics or customized tools – and they are integrated into the system.
Essential components of a financial management system
An effective financial management system provides companies with a full suite of accounting software and a single source of truth. Within the system are many different tools, which can be grouped into the following four categories:
General accounting and financial close
These tools support essential bookkeeping activities such as general ledger, accounts payable (AP), accounts receivable (AR), and payroll. They help teams generate reports, create financial statements for income, expenses, and balances – and close the books quickly and with less effort. Tax management features also help ensure tax accuracy and compliance.
Financial management system showing accounts receivable status
Revenue, cash, and treasury management
With revenue accounting tools, finance teams can automate billing processes, view up-to-the-minute payments, and ensure compliance with statutory regulations for revenue recognition, such as IFRS 15. Cash and treasury management tools help teams predict cash flow, improve liquidity, and proactively mitigate risk. This software also integrates with banking systems, so users can get real-time visibility into bank balances and simplify reconciliation in accounts.
Financial planning and analysis
This set of planning, forecasting, budgeting, and analytical tools help CFOs and their teams support the company’s overall financial health. FP&A software is critical for analyzing costs and profitability, improving performance, predicting and navigating future conditions, and providing fast and accurate decision support to the C-suite. It also supports multi-scenario planning and collaboration between finance and every other department.
Governance, risk, and compliance
GRC tools help teams align organizational activities to business goals, identify and mitigate different types of risk, and ensure compliance with laws and regulations – from GDPR and SOX to international trade agreements. By synchronizing data across corporate governance, risk management, and compliance activities, companies can operate more efficiently, navigate uncertainty, and act with integrity.
GRC software helps companies monitor and manage capital availability and associated risks.
Digital finance transformation and new technologies
Most companies are still in the early stages of applying digital technologies like cloud, augmented analytics, robotic process automation (RPA), artificial intelligence (AI), and blockchain to finance processes – but they are on the cusp of a major shift and the pressure is on. Not only are CFOs and their teams increasingly expected to provide rapid decision support to the business, but hard lessons learned from the COVID-19 pandemic are forcing leaders to accelerate finance transformation and new technology adoption.
It’s easy to see why. The benefits of digital finance transformation – like instant intelligence, highly accurate predictive modeling, and more agile and automated processes – are the ingredients companies need to navigate change and adapt to the new normal. AI in particular is a driving force behind finance transformation, completely revolutionizing finance analytics, automation, and every process – from financial closing activities to risk mitigation and compliance.
Cloud financial management
In addition to scalability, cost-efficiency, and the ability to connect to more Big Data sources, cloud-based financial management offers secure access to the system from anywhere – which is especially important now that so many employees are working remotely. The cloud is also the gateway – and prerequisite – to new and intelligent technologies like AI, machine learning, and blockchain.
Advanced finance analytics
Finance analytics powered by AI and machine learning can mine massive sets of structured and unstructured data – from inside and outside the organization – in near-real time. These analytics empower finance professionals to create more accurate forecasts and plans, model future scenarios, understand the financial impact of potential decisions, generate on-demand reports, and predict risk and opportunity. Ultimately, advanced finance analytics can be used to steer the business in the right direction and ensure long-term sustainability.
8% of corporate controllers will soon be using a combination of RPA and AI to automate everything from financial reports and closes to tax preparation and payroll. RPA bots not only automate repetitive tasks and free up workers to focus on higher-value work – they can complete more work faster, minimize costs and errors, optimize workflows, and orchestrate activities across human-bot teams.
In finance, blockchain technology offers new levels of transparency, efficiency, and security. For example, finance teams can use blockchain to create a single, immutable ledger that’s always up-to-date and doesn’t require reconciliations. Blockchain-based smart contracts – contracts that automatically execute once predetermined conditions are met – can also be used to automate and accelerate activities like payment processing and regulatory compliance.
The best cloud-based financial management systems now embed intelligent technologies like advanced analytics, AI, machine learning, and blockchain directly into their tools – which dramatically speeds up finance transformation and offers rapid time to value and ROI.