What Is A Finance Management System? (With Benefits)
By Indeed Editorial Team
Published 7 September 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Effective management of finances is crucial for an organisation to maintain its functionality and health. A robust and competent financial management system is necessary for an organisation to manage its assets, earnings and expenses and maximise its economic potential. Learning about financial management systems can help you understand the concept and the benefits they offer. In this article, we answer 'What is a finance management system?', discuss its benefits and share some examples.
What Is A Finance Management System?
The answer to the question, 'What is a finance management system?' is that it is the tool and process that organisations use to manage their financial activities. An organisation's financial management system is the totality of all the software and processes it uses to govern its financial activities in a sustainable and profitable manner. A financial management system oversees a broad range of aspects, like cash flows, assets, expenses, allocations, budget and taxation. It is a system that helps the organisation streamline its finance-related components and helps them manage and improve their economic standing.
Features Of A Good Financial Management System
Financial management system successfully applies management principles to the finances of a business and automates all its financial processes. An organisation's financial management system supports various functions across the enterprise and aims at transforming its financial activities. There are several key features that characterise a good financial management system, including:
Managing daily accounts: The financial management system manages the day-to-day financial activities of the business seamlessly. A sustainable and efficient system can ensure proper management of routine work and repetitive tasks.
Reporting: Financial management systems have specific objectives like generating quality reports that offer deep insight into the organisation's operation. It gathers data from various sources in real-time and its add-on features can create charts and process data in unique ways.
Managing and monitoring cash flows: The financial management system monitors the various cash flows and expenditures efficiently and accurately. It monitors all such financial activity across all divisions and offers the real-time status of transactions and cash flows.
Integrating several systems: The financial management system can operate on multiple processes through a single platform. The financial management system is flexible and can quickly integrate data from various operations. It makes managing independent systems convenient.
Managing time: Financial management seeks to maximise the efficiency of work and operation while saving time. It avoids redundancy while processing data and provides quick and easy access to this formation.
Automating the processes: Financial management systems automate all financial processes and negate dependency on manual work. Automation of processes assures uninterrupted work and seamless data activity. Automation also helps in the quick execution of complex and recurring tasks.
Ensuring data integrity: Financial management systems can also ensure consistency in financial data. It maintains high levels of accuracy and keeps all financial information transparent and up to date.
Planning and forecasting: A robust financial management system can predict financial activities of the future and the organisation can gain a deeper insight into its financials. It enables the organisation to plan for future activities and take the necessary course of action and increase its chances of success.
Examples Of Financial Management Systems
Depending on the business and nature of operations, organisations can utilise a management system that is suitable for their business. Besides the routine financial procedures, the financial management system has to ensure long-term sustenance and maximise profits. Given below are some examples of the financial management system that organisations utilise to govern their financial activities:
Enterprise resource planning
Enterprise resource planning (ERP) is software that manages business activities like accounting, procurement, risk analysis, project management and supply chain procedures. The software offers a one-point solution to a multitude of business functions and ensures the proper flow of data between these functions. ERP is an ideal cloud-based solution that organisations of all sizes favour because of the system that supports multiple processes across the enterprise.
Enterprise performance management
Enterprise performance management (EPM) is a tool that helps businesses with the management of their performances to achieve organisational goals. EPM can integrate with ERP systems and typically helps in offering management insights and consolidation of financial outcomes. EPM software has high levels of applicability across various departments and improves an organisation's performance by overseeing both operational and financial performance.
Customer relationship management
Customer relationship management (CRM) is an extensive cloud solution that organises all financial activities stemming from customer interactions. CRM system includes several components and it gathers consumer data that can help businesses forecast sales and improve customer service activities. CRM streamlines all those processes that relate to the customer, like engagement, conversions, sales and profits, making it a comprehensive sales assistance tool.
What Are The Benefits Of The Financial Management System?
Organisations often require a comprehensive financial system that helps organise, plan and budget their financial resources and achieve their financial goals. A financial management system helps an organisation manage its short-term and long-term financial activities in an agile manner. Given below are some benefits an organisation reaps from an effective financial management system:
Optimises processes and productivity
A financial management system can improve the organisation's financial processes and simplify them significantly. It enables to perform daily financial procedures and practices conveniently and quickly through software and financial tools. This can improve the productivity levels of an enterprise and assist departments to manage their finances better.
Improves access to information
Financial management systems offer a single-point solution to data requirements and storing of information. It offers easy access to vital information and helps you accurately record and report information. Various departments and branches within an organisation can seamlessly access the broad network of information and utilise it for their work and dispense it across various channels.
Provides work flexibility
Financial management systems offer high levels of flexibility in work and can enable individuals to manage their work remotely. Cloud-based software solutions offer the organisation a platform to access all financial information online and get real-time updates. An organisation can set up separate databases that apply to specific departments and centralise information whenever necessary to enhance workflow.
Ensures data protection
Financial management systems are reliable and help keep the organisation's sensitive information secure. It ensures continuity of work and prevents data loss, as the financial information is subject to regular updates and backups. The financial management system ensures safety against data theft and its encryption mechanisms help maintain the integrity of the information.
Automates financial processes
Financial management systems simplify diverse financial processes that are complex and time-consuming. It eliminates dependency on manual procedures and minimises the chances of human errors. A financial management system can perform the routine tasks automatically while individuals can focus on work of priority.
Facilitates decision making
Financial management systems ensure the accuracy of data and provide real-time financial information to managers that can aid them in their decision-making process. It segregates financial data and re-organises it departmentally to ensure involved individuals understand the inputs better. This financial management system enables decisions to be a data-driven approach which can help executives make informed decisions to achieve organisational goals.
Helps businesses adapt
For an organisation to maintain and improve its financials, it is vital for the business to remain dynamic and adapt to changes effectively. Proper management of finances helps businesses stay relevant in the industry and market. Financial management systems help businesses stay agile by enabling their financial procedures and managing their activities efficiently.
The financial management system provides up-to-date information accurately and ensures the business is on-par with present-day accounting standards. Financial management systems help you keep monitor all necessary financial information vital to the auditing processes. It has several add-on features and can auto-generate financial reports in formats that comply with legal standards.
Assists in planning and budgeting
It is vital for an organisation to utilise its resources sustainably and optimise its functionality. Financial management systems include components that help in budgeting and the proper allocation of assets. The financial processes it oversees are vital for future planning and growing the organisation's financial scope.
Helps in financial projections
Financial management systems can also help the organisation with its financial projections by assessing historical and current financial data. The financial management system can locate trends and financial patterns that the organisation can utilise in forecasting its future performance. It helps the organisation mitigate potential risks and plan corrective actions to resolve them effectively.
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