Nominal Ledger (NL)
Also known as the General Ledger (GL). Structured by the Chart of Accounts, which is in turn defined by the Management Accounts and other Management Information, Reporting and Analysis requirements specific to the business. Accounts consist of Trial Balance – made up of various ledger entries (Purchase Ledger, Sales Ledger, etc.) together with various Period-End Journals (Accruals, Prepayments, Depreciation, etc.). Reported in month-end accounts (Financial Statements: Profit and Loss, Balance Sheet, Cash Flow Statement) and other general ledger reports. Actual results are compared monthly against Budget or Forecast, and are often also forecast out to year-end. Month-end and ad hoc analysis and reporting can also be included (e.g. Revenue analysis, Cost analysis, Product or Service analysis, Customer analysis, Contribution or Profitability analysis). Forms the basis of year-end accounting including year-end journals and adjustments. May include additional level(s) of analysis codes to allow easy preparation, consolidation and reporting of year-end financial statements, analysis and calculation of business tax, and preparation of year-end returns including readying accounts for electronic filing.
Purchase Ledger (PL)
Also known as Accounts Payable (AP). Contains the master file for setting up and maintaining all supplier details (e.g. addresses, contacts, VAT details, bank details, payment terms) and transaction details (supplier invoices, payments, balances due). Details are mirrored for international supplier contact/payment details where necessary. Usually linked to cashbook/bank for payment runs (cheques, transfers, BACS) and linked to remittance module for generating and emailing electronic remittance advices. Ideally programmed with business rules for validating transaction/data entry (currency-supplier matching, VAT rate validations by supplier/country, invoice coding and analysis validations, etc.). Make use of customisable data entry forms where possible to assist with validated data entry and transaction processing. May be linked to a Purchase Order Processing (POP) module, allowing invoices to be automatically matched to authorised Purchase Orders and auto-approved for payment. Alternatively, checking and authorisations of invoices processed manually. The business should establish authorised invoice signatories and authorised sign-off limits. Where a POP module is in use, authorisation limits can be pushed back to the start of the purchasing process allowing far greater automation. Each month-end/year-end requires an end of period process or Period Closedown; this can either be a Soft Close or Hard Close. There will be a facility to make non-invoiced payments; these should be documented and authorised by the relevant Head of Department and/or Head of Finance. Various Purchase Ledger reports can be run, including Analysis of Spend by Supplier, and an Aged Creditors Report which shows outstanding committed/authorised spend aged by due date (for use in cashflow forecasting).
Purchase Order Processing (POP)
Simple systems allow for standard and recurring purchasing requirements to be setup as standard forms for ease of purchasing. They provide documentation for requisitions, quotation requests, purchase orders, order amendments, returns to supplier, etc. and allow easy management of the purchasing operation (e.g. tracking delivery/goods receipt, contract management). They provide purchasing reporting and analysis, and assist purchasing planning (e.g. inventory management and replenishment). Advanced systems include e-procurement options allowing electronic integration with suppliers, or similar automated access to supplier online portals allowing supplier self service. They may also allow for e-procurement integration with customers, for faster expediting of customer orders.
Sales Ledger (SL)
Also known as Accounts Receivable (AR). Contains the master file for setting up and maintaining all customer details (e.g. invoicing and delivery addresses, contacts, VAT details, bank details, credit terms, credit limits) and transaction details (sales invoices, credit notes, receipts, balances due). Details are mirrored for international customer invoicing/payment details where necessary. Usually linked to cashbook/bank for reconciliation of receipts (by cheque, credit card, bank transfer/BACS). Linked to credit control module for automatically generating and sending (post/email) statements and credit letters on overdue accounts. Ideally automated and integrated into customer order processing module for auto-payment processing and posting of relevant accounting entries. Where manual posting of sales invoices is required, ideally should be programmed with business rules for validating transaction/data entry (currency-customer matching, VAT rate validations by supplier/country, sales invoice coding and analysis validations, etc.). Make use of customisable data entry forms where possible to assist with validated data entry and transaction processing. May be linked to an Invoicing module, alternatively sales invoices are processed manually. The business should establish clear customer credit limits, company credit policies and credit control/chase procedures. There should be clear terms of trade which customers are required to agree to before/upon placing an order. Month-ends/year-end require an end of period process or Period Closedown. Various Sales Ledger reports are available, including Customer Analysis, and an Aged Debtors Report which shows outstanding receipts aged by due date (for use in cashflow forecasting). Payments received are tied to cashbook/bank for easier receipt reconciliation. Advanced systems allow customers access to their customer account records online.
Invoicing
Automates the process of invoice creation, issuance to customer and journal posting to the accounting ledgers. Able to set up standard invoice types, payment terms, etc.. Often integrated with CRM system.
Sales Order Processing
Handles all aspects of customer sales order management including proposals, quotations, contracts, products and offers, pricing and discounts, sales pipeline/marketing campaign tracking, order handling, sales ledger integration and invoice posting, order fulfilment, delivery tracking, etc.. Advanced systems will offer ability to cross-sell and up-sell, often being integrated into the CRM system, and customer selection based on key metrics (e.g. recency, frequency, value). Usually easily integrated into ecommerce website, industry-standard shopping carts, product catalogue(s), product management database, etc. and provides robust analysis and reporting functionality. Should be able to handle variety of different customer/sales types e.g. direct to consumer, B2B, trade customers, cash sales, EPOS integration (if applicable). Can handle customer returns and credits or refunds. Advanced systems may provide a customer portal for customers to access catalogues and place orders directly online (customer self service), with full integration throughout the order processing and finance modules.
Inventory
Holds all inventory information, usually in a product database, including stock categories (useful for analysis and reporting) and standard cost and selling prices. Handles all stock-related transactions, from deliveries received (Goods Received Notes/GRN’s) to orders fulfilled, for stock held in multiple locations. Reports on inventory levels, values and usage (by category where applicable). Advanced systems allow integration with warehouse tracking systems, possibly incorporating barcodes or modern alternatives such as radio frequency identification (RFID) tags for tracking and counting stock levels. The company should undertake at least one physical stock count per year, reconciling back to the book stock held as per the inventory system, realigning stock levels as necessary and investigating significant differences. (Robust physical inventory control procedures should be established by the company but are outside the scope of this paper.) Advanced inventory modules include inventory forecasting and reordering functionality, which may be integrated into the purchasing module.
Job or Project Costing
Relevant where the company manufactures discreet products or manufactures in batches, or where customer orders are easily traceable as single jobs or contracts but consist of multiple parts. Also known as manufacturing on a Bill of Materials (BOM) basis, or Kit Manufacturing where final product is a kit made up of multiple products. The job costing module handles the whole process from planning phase (including quotations), through budget to actual costs, and can deal with job variations if they arise. It monitors and reports actual costs against budget to allow for management control where required. It provides all job documentation from quotes and work orders through to final invoicing, with full integration into other modules (sales order processing, invoicing, sales ledger) generating journal accounting posting of sales and costs upon completion.
Cash Book
Holds all information related to bank accounts and records all bank and cash transactions, with full integrated into both sales and purchase ledgers for automated posting of receipts and payments. Generally also able to handle automated bank reconciliations, with modern systems allowing data download from standard online banking systems. Reporting functionality covers standard cash book reporting and enquiries, spend reporting and cash flow forecasting, this later often being integrated with reporting of creditors, debtors, and sales/procurement pipelines as per the sales order management and purchase order management modules.
Fixed Assets
Holds all asset records for the company, known as the Asset Register. Handles Acquisitions and Disposals, and performs required Depreciation calculations and journal postings (usually monthly) based on the company’s set depreciation policies for different asset types. Provides tracking of actuals against a set capital expenditure budget, can forecast capital expenditure to end of year, and provide a variety of fixed assets reports such as cash flow forecasts, asset values for use in obtaining insurance quotes, etc.. Advanced systems also provide for asset valuations, monitoring of capital projects, tagging and tracking of physical assets, and other advanced accounting requirements (e.g. monitoring/recording of capital allowances for UK taxation purposes, accounting for lease assets, end of year accounting and reporting).
Analytics and Reporting
A good analytics and reporting system will provide functionality for analysis and reporting of management information (Business Intelligence, BI). At a minimum it will monitor and report on core business activity, and calculate/report on the key Business Metrics as defined by the business. More advanced functionality will include advanced mathematical and statistical modelling/forecasting tools for predictive analytics, and data visualization and presentation tools (graphs, dashboards). Dashboards can be tailored to different users’ information requirements, or may be interactive or contain an automated self-service element allowing users to define and run their own reports and drill down into the source transactions. Dashboards will usually be supported for both desktop and mobile access. Advanced systems may include a Data Warehouse – or one may be build as an adjunct to the system – pulling together data from various data sources, with functionality for advanced data extraction, analysis and report writing using such tools and methods as Online Analytical Processing (OLAP) or Extract Transform Load (ETL). Very advanced systems may include capabilities for data mining, machine learning, etc. although these will be computationally heavy functions.
Systems Design with Analytics
The ideal analytics and reporting system will be customised to provide real-time, dynamic metrics which allow the company to automatically and immediately optimise its response to customer and market input (behaviour). Failing that, a next-best option will be to respond to customer actions/inputs manually but with full reference to all available customer insight and historical trading data. Empirical testing should also be built into the system, to allow recommended changes and improvements to be split tested (also known as A/B testing) before being rolled out across all operations when sufficient evidence indicates the best action to take.
Other possible functionality
Depending on company requirements a system may need to provide additional functionality such as expenses or timesheet management (including authorisation and payment), workflow management (e.g. production-based businesses), email and dashboard alerts, social media and mobile integration, self-service report-writing, ability to multi-company (and associated international VAT/GST implications) and/or multi-currency environments. You should also consider the need for/benefit from having functionality (or levels of analysis) to deal with regulatory and taxation frameworks and reporting requirements (e.g. revised accounting standards, additional compliance requirements, changes to VAT/GST or taxation environments, etc.).
Systems Administration, Technology and Support
The system should provide robust and efficient functionality. System speed and performance should be sufficient for the company’s growing needs. There should be good systems controls, security levels and auditing functions in place, along with sound data back up and recovery procedures. Technology requirements should not be onerous or expensive. There should be facility to integrate with other industry-standard software/systems, and the system should support industry-standard software , programming languages and file/data sharing protocols (e.g. SQL, XML, XBRL). The system should provide excellent ongoing support and training facilities and should be subject to a rolling program of development and improvement for a mid-term timeline. The vendor/system support provider should be able to offer high quality initial training and installation support, together with an ongoing program of training and development to users at varying levels of technical ability.