Lessons from Having Love/Hate Relationship with ERPs in Fast-growing Tech Companies — Part 2 of 2.
This is the second of two posts focusing on the learning I had from looking for and implementing ERP systems in my various roles. For convenience, I am referring below to accounting packages and ERPs interchangeably.
SaaS
It is no secret that the tech industry is “in love” with the SaaS model. There are plenty of systems that are used to manage subscription services (Zuora, Recurly, etc). Some ERP systems also provide recurring billing functions and so do some of the payment gateways (Stripe, etc). No matter which option is chosen, the reality is that each transaction is recorded in (at least) 3 to 4 different places 😱:
- The aggregate amount settled into the bank account
- The breakdown into transactions of this aggregate amount provided by the bank or the payment gateway
- Breakdown of the detailed transactions charged to the customers by the payment gateway
- Details of the attempts to charge the card by the subscription service
- Sometimes in the internally developed admin console. Occasionally, numbers 3 and 5 are the same.
I touched on in part 1 of this article why bank reconciliation can be difficult in tech companies (high volume, low value). Another reason is that traditionally, bank reconciliation had only 2 sources of data: the ERP records were to be matched against the bank records, that’s it. Now we have all of the (5) above. This makes things more challenging.🏋️♀️….Matching how much money we have based on the internal systems to what we really have becomes much more complicated.
Adding to this, are issues like dunning periods, expired cards, off-system transactions, refunds, and chargebacks, resulting in quite a complex problem.
If it is not a SaaS service but just a “simple” e-commerce business, you may avoid the need to reconcile #4 above, but you will still have your internally developed system (or its replacement like Magento) to deal with.
Modern payment methods
Many tech businesses accept payments and pay via digital wallets. They are quick, easy to use, and befitting to the new age business. However, digital wallets also have their challenges. They are not banks and are not governed by the same regulators. This can mean that their level of reporting, data integrity, and controls can be challenging.
One of these challenges is the transaction ID format and uniqueness. I’ve seen wallets where the transaction ID is not unique, or the same transaction would have a different ID in different stages of the lifecycle of the transaction. This makes the matching very complicated.
Traditionally, bank transactions are recorded in the relevant account in the GL and the ERP reconciliation module will enable the selection of criteria for transaction matching. Normally, it would be the date, amount, transaction ID, etc. It’s important to be aware that often these modules were not built with the intricacies of digital wallets in mind. This means that caution should be applied in the selection 🧐 stage to ensure that they will be compatible with digital wallets.
Remote access
Long before Covid19, work from home, and the Zoom era, a remote access requirement was relevant for many culturally advanced companies that allowed work from anywhere. You would want your accounting system to be easily and seamlessly accessible from any place in the world. This means a cloud solution, and I was surprised to see how many systems are not true cloud solutions. The CTO will be a great help ensuring that the preferred solution can deliver from this aspect as well.
For businesses that work with one-off service providers, which are quite prevalent in the gig economy, you should carefully check if a license is required in order to:
- Submit invoices,
- For those invoices to be matched against purchase orders
- Approve invoices
Enabling self-serve can save an Account Payable FTE, but if you need to pay for a license for each remote access this can make it not worthwhile.
Of course, being able to access the system from home without using a VPN, being able to approve PO and invoices on the phone, are all factors that need to be taken into account and match the business culture.
There is so much more to ERP systems, issues like reports flexibility, number of dimensions, and so forth all deserve a separate article but I tried to focus on the points which are uniquely relevant to tech companies. If you have any questions, ping me!
