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Why Financial Management Systems and Integrated Payments Are a Winning Combination

  • 7 min read

A financial management system is the software that allows companies to measure and optimize financial performance.

When paired with integrated payments, its capabilities stretch much further, enabling finance teams to reduce manual processes and accelerate cash flow.

Financial management system

Since the onset of the COVID-19 pandemic, supply chain disruptions have been a constant issue for companies. To counteract supply chain risk, businesses have to be able to make quick decisions like how to manage inventory accordingly. This means having all of your financial data right at your fingertips.

A financial management system (FMS) serves this purpose, bringing all your financial reporting into one central location. But while financial management systems align all aspects of your financial operations, there are limits to their reach.

For instance, when it comes to managing the order-to-cash cycle, there’s a critical step that lives outside of these platforms: payment processing. When processing payments externally from your FMS, your accounts receivable (AR) team has the arduous task of posting those payments in the system manually.

In this article, we’ll explain why a financial management system paired with an integrated payments solution is a winning combination.

You’ll learn:

What is a financial management system?

A financial management system is the software and processes that allow an organization to measure and optimize its financial performance. It ensures that accurate financial information is flowing into the rest of the company.

These software systems support finance and accounting teams carry out vital functions like:

  • Maintaining the general ledger and sub ledgers

  • Expense management

  • Collections management

  • Cash flow management and forecasting

  • Risk management

  • Compliance with accounting standards

  • Overall financial reporting

Without financial management systems software of any kind, it would be very challenging for companies to track all their various financial transactions and maintain clear audit trails. And given that financial data trickles into the rest of the organization’s priorities, it’s vital that there be a single source of truth for this information.

What are the four elements of financial management?

There are four main aspects of financial management and an FMS platform helps finance teams handle all of them. These are: planning, organizing, directing, and making decisions. Here’s a quick overview of what each element entails.

1. Planning

Your business probably has several long-term goals, such as expanding gross margins, growing revenue, or offering a product or service to a new market. To accomplish any business goal, you have to come up with a step-by-step plan.

2. Organizing

Once you have a plan in place to accomplish those goals, the next thing you’ll need to do is figure out what available financial resources (equipment, staff, software, etc.) the company will need to complete it.

3. Directing

To increase the likelihood that projects are completed on time, on budget, and to specifications, you’ll need to monitor how you’re tracking on those goals. Is the company’s spending paying off? Your original plan doesn’t have to be set in stone, but any changes you make should be intentional and backed up by data.

4. Making decisions

Making decisions is a vital aspect of financial management. Executive leadership leans heavily on the finance arm of the business to make company decisions. To make the right decisions, finance teams need access to the right data in a timely fashion.

What’s the difference between an FMS and an ERP?

You may have seen the above capabilities discussed in the context of an enterprise resource planning (ERP) system and wonder how it differs from a financial management system.

An ERP might include an FMS, but its capabilities will stretch far beyond a company’s finance function. ERP software acts as the center of a business’ full scope of operations, which might include:

  • Financial management

  • Sales and services

  • Inventory management

  • Supply chain management, and

  • Quality assurance

In contrast, financial management software only concerns itself with a company’s financial operations.

Whether a company opts for an FMS or an ERP will depend on the nature of its business. For instance, an ERP is a natural fit for companies working in manufacturing or distribution. An FMS makes sense for companies that don’t manage physical inventories such as law offices or accounting firms.

There are countless ERPs on the market, but not all of them have strong FMS capabilities. Here are a few ERP systems that get rave reviews from finance teams:

What are the benefits of having a financial management system?

Financial management software helps businesses optimize their financial performance by:

1. Eliminating accounting errors

An accounting error can have potentially severe consequences. It’s important to reduce the chances that a mistake slips through the cracks. With financial management software, you can automate manual processes, decreasing the likelihood of a costly error.

2. Simplifying invoice and bill collection

You don’t want your finance team to be constantly chasing buyers for late payments. They can contribute more to your organization by redirecting their time to more strategic work like trend analysis and forecasting. Financial management software can simplify the invoice and bill collection processes, removing the need for human intervention.

3. Paving the way for growth

Do you want to take your organization to new heights in the future? If so, you don’t want your processes to hold you back. A quality FMS can scale with your company so that you’re not constantly adding headcount. Without cloud accounting software, you may need to hire a lot of employees to manage key processes as your business grows.

What are integrated payments?

An integrated payments solution works by embedding the technology used to process payments with a business’ core systems and software. With integrated payments, suppliers can accept and post payments directly in their FMS or ERP.

This is immensely helpful as businesses grow. A company's accounting processes can scale along with the business without the need for adding headcount to facilitate the additional payment volume.

The value of integrated payments in tandem with financial management systems

An FMS or ERP with strong financial management capabilities can, on its own, provide a lot of value in the form of increased back-office efficiencies. But, you’ll likely still need a different provider to handle the actual processing of payments.

By working with a provider that integrates payment processing with your financial management or ERP software, you can accept payments from all of your channels (ecommerce, point of sale, and accounts receivable) directly in your existing platform and store all financial operations data in one place.

Why are these capabilities so important? Consider what would happen without an integrated payments provider. You’d likely be working with multiple third-party processing partners to support each of your payment channels. This means your AR team has to track down important information like bank reconciliation files from multiple sources.

Without data automatically flowing between your payment processor and FMS, your team would also have to manually post payments to their respective invoices. With a high volume of payments being applied via manual data entry, human errors are bound to happen.

This manual process can also hinder your ability to make sales if delays in replenishing customers’ credit prevent them from making more purchases.

Here are just a few of the benefits of integrating payment processing with your FMS:

  • Reduced hours spent on manual AR processes, allowing your team to focus on higher-value activities

  • Improved cash conversion and working capital due to faster cash application and the ability to support more payment channels

  • Greater savings from interchange optimization as more data is sent with every transaction, leading to lower processing costs

  • Increased security due to limited need for multiple third party systems and AR staff to interact with sensitive payment data (data is tokenized and brought into your accounting software automatically)

Learn how Versapay’s integrated payments help you extend the capabilities of your financial management software here.

About the author

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Nick Vasco

Nick Vasco is a freelance writer who specializes in fintech. His previous experience as an FP&A analyst gave him an understanding of the challenges facing accounts receivable and finance professionals, helping him create content that solves their most pressing problems.

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