Over the past few decades, Enterprise Resource Planning (ERP) software has grown to become an indispensible part of the modern business world. Products such as Oracle, SAP, and Microsoft Dynamics are almost ubiquitous now: according to the Aberdeen Group, over 70% of Fortune 1000 companies have implemented such systems, and mid-size businesses are even more prolific in their ERP usage.
While the number of ERP products on the market has grown dramatically in the last 10 years alone, many of these systems still struggle when it comes down to managing complex accounting processes. Much of that can be traced back to the way generic ERP solutions are designed: to use an old adage, they're a mile wide, but an inch deep.
The Fallacy of "One Size Fits All"
Different businesses have different needs. A multinational medical device manufacturer is not the same thing as a US-based music streaming service -- both have their own requirements in terms of customer management, billing, revenue recognition, and regulatory compliance. Even companies within the same verticals frequently diverge in their day-to-day operations.
ERP systems, however, typically try to be all things to all people. In an effort to make them relevant to as many industries as possible, developers often sacrifice depth for sheer breadth, paying only lip service to potentially crucial functions like complex revenue management and billing.
No surprise, then, that so many ERP deployments require significant chunks of custom coding just to meet companies' basic business needs. Panorama Consulting recently surveyed a range of businesses about their ERP systems, and found that 40 to 60% of all software in those systems was custom-coded exclusively for that installation.
What's more, in more than one-fifth of those cases, over a quarter of the program's code was custom-written:
Thanks to the "one size fits all" approach, ERP vendors are left reinventing the wheel with every new deployment, saddling customers with untested and potentially volatile code. But the alternatives aren't much better: without that custom coding, companies have to rely on sidebar systems or manual stop-gaps like Excel spreadsheets, creating additional business risk.
Handling Financial Management with a Generic ERP System
Out of the box, large ERP systems generally offer at least some standard accounting functions like accounts receivable and accounts payable. Generic systems, however, tend to fall short when it comes to businesses with complex revenue and billing structures. Notable problem areas include:
- Complex pricing and modifications.
- Changes and adjustments to existing contracts impacting billing and revenue recognition.
- Recurring invoicing, milestone schedules, renewal processing quotes, and pricing calculations.
- Unbilled vs. billed or deferred revenue.
These are not minor shortcomings, either -- issues created by inadequate billing and revenue management functions can range from lost productivity and missed revenue to increased audit risks and even the need to restate revenues. Worse, they only become more acute the larger and more intricate your business becomes.
In most cases, this is where custom coding enters the picture. If a company has a good understanding of its complex accounting needs, these functions can be built into an initial deployment and evolved from there. But what happens when a company changes its business model, or wants to roll out new products and services that aren't compatible with its existing processes?
If the ERP system has enough depth, it's just a question of identifying and adopting the appropriate feature or tool. But since those features likely don't exist in a generic solution, they have to be hard-coded into the existing deployment. That not only creates additional expenses and disruption, but also increases the headaches associated with maintaining -- and ultimately, upgrading -- the system.
The Right Tools for the Job
However, there are other alternatives beyond adding another layer of customization or going back to spreadsheets:
Dedicated Billing and Revenue Management Software. These solutions support your ERP and financial infrastructure by automating the entire revenue cycle from end to end, from contract/order inception all the way to recognizing revenue. Companies that use billing and revenue management software instead of generic ERP systems organize their finances much more efficiently, reduce operating expenses, optimize AR and cash flows, maximize revenues, and meet regulatory commitments such as Sarbanes-Oxley, FASB, and IFRS requirements.
Modular Solutions. If you're attempting to address one specific problem area as opposed to a whole range of system shortcomings, it may be possible to bring in a "plug-in" solution that directly integrates with your ERP or financial system. Our own Revenue Manager is one such product, designed to provide a robust range of revenue recognition functions for companies with substantial existing infrastructure but no concrete revenue management capabilities.
If you’re interested in learning more about how to overcome the shortcomings of generic and off-the-shelf ERP systems, you can download our free whitepaper entitled “A Guide to ERP Augmentation for Improved Billing and Revenue Recognition” by clicking the button below.
Martin Sachs is SOFTRAX's Marketing Manager. An experienced marketing and creative services professional, he was previously active in energy R&D and has provided consulting services to a number of innovative technology and software startups.