Financial Management System

The need for a strong financial management system in today’s dynamic corporate era cannot be overlooked. It acts as a structural unit of a firm, maintaining its financial viability and longevity; therefore, financial management systems are an integral component of a company’s budgeting, borrowing, and expenditure tracking.

The concept of FMS in the UK dates to the financial revolution, which brought substantial changes to the British financial system because of the establishment of a system that required the generation of national debt. The generated national debt would be given to the governing body, which can spend beyond the limits of taxation.

In this article, we will explore what a financial management system is, its essential types, and the five game-changing benefits of FMS. Managing finances just got a lot easier!

What is a financial management system?

The financial management system is a software and process that organizations use to handle their revenue, expenses, and assets while maximizing earnings and maintaining long-term firm sustainability, besides assisting everyday financial activities.

A financial management system offers immediate insight into a company’s financial situation while enabling regular activities such as period-end close activities through the incorporation of these critical components.

To put it simply, an organization would not be able to function without financial management software since every firm needs a mechanism to handle the movement of funds in and out of the organization. It measures and tracks cash flow, ensures compliance with state or federal regulations, establishes financial scenarios, and manages effective relationships between investors and leaders.

Types of financial management systems

The ability to generate automated reports and easily develop ad-hoc results is not just a trend in this fast-paced technological era, but a core requirement of FMS. For sound fiscal governance, a solid FMS serves as a basis for strategizing, decision making and controlling the company’s operations and ensures that it aligns with the strategy.

When it comes to properly handling your funds, possessing the right tool for the task at hand is critical. Financial Management Systems (FMS) exist in a variety of forms, each adapted to a unique set of requirements.

Based on these core features, financial management systems are of various types. Some of the prominent ones are:

Personal Finance Software

Personal finance software is your best bet for effectively managing your financial affairs. These user-friendly tools make it simple to monitor expenses, develop budgets, and set financial targets.

Enterprise Resource Planning System (ERP)

ERP systems hold the spotlight when it concerns managing funds within a corporation.The ERP system is embedded in the FMS and helps in multiple business operations relating to HRM, inventory management system, sales and marketing, supply chain, customer management and business intelligence. Since information is modified in real-time, every employee has the benefit of working with the same data.

Microsoft Dynamics 365, NetSuite, and SAP Business are some of the well-known ERP systems.

Cloud-based Financial Management Systems

An ideal choice for businesses of all sizes could be cloud-based FMSwhich offers flexibility to gain access to your financial data, activities, and records from anywhere in the world. These are lessexpensive, efficient, use data from multiple sources and are secure to use from anywhere while making the most of new technologies like AI.

Xero and Zoho Books are some of the prominent cloud-based FMS services.

Hybrid Financial Systems

These kinds of financial systemsintegrate the features of both Cloud-based FMS and on-premises FMS. With hybrid FMS, you can have greater control, security, access and flexibility and a fit choice for any organization wanting a balanced approach.

Robotic Process Automation

Machine learning and AI have transformed a traditional era into a robotic one and this is how RPA helps financial management systems to omit any tasks requiring manual work such as report preparation, taxation, and payroll.

RPA bots can help your financial team work more efficiently in a shorterperiod, reduce the probability of errors and focus on higher-level tasks.

Components of a financial management system

A financial management system is an amalgamation of different resources and tools to help an organization possess full-fledged accounting software. Within the system, some tools can be grouped into main components. It propels the financial stability and success of employees and the firm mutually.

To fully use the potential of an FMS, it is critical to grasp the primary components, each of which plays a distinct role in meeting financial objectives.

General Ledger

The General Ledger acts as a structural unit of any FMS and is the central repository where financial activities like transactions are recorded and sorted. It presents all the information regarding the income, assets, liabilities, equity, and expenses. Businesses can track financial health, stability, and statements with an organized General Ledger.

Accounts Payable (AP)

Any funds that you owe to a vendor, supplier, or creditor are managed by the Account Payable component of FMS. It tracks payments, helps pay bills on time and ensures cash flow while reducing late payment penalties.

Accounts Receivable (AR)

Contrary to AP, Accounts Receivable looks after incoming payments from clients or customers while tracking invoices, and payment collections and maintaining a healthy cash flow. It minimizes the issue of unpaid debts while improving financial efficiency.

Payroll

It calculates and distributes employee salaries and perks automatically while ensuring timely payments andcomplying with tax regulations and laws. The payroll component of FMS helps boost employee satisfaction and helps businesses stay on track with labor laws.

Budgeting

Budgeting allows organizations to define financial objectives, manage resources and prepare for future events. It helps monitor financial performance and progress, and spot areas where expenses need to be cut or reallocated.

Forecasting

Driven by algorithms and data analysis, forecasting is all about predicting future financial outcomesbased on previous data and current trends. These findings allow organizations to make educated decisions and modify their strategy to comply with evolving market circumstances.

Reporting

After all the prominent components of FMS are compiled and carried out, the final stage is to report all the changes, findings, and predictions. The reporting feature of FMS helps prepare balance sheets, income statements, customized reports, and cash flow reports. Investors, stakeholders, and management benefit from reporting as it gives a clear picture of financial performance and helps in decision-making.

5 benefits of financial management system

To organize, plan and budget their revenue, organizations require a fine FMS and meet their financial objectives.It is a powerful and necessary tool that helps you optimize your financial planning and viability. Here are the fivetangible benefits that make incorporating FMS a game-changer in your financial planning.

Streamlined Financial Assets

Streamlining financial assets and activities is not a piece of cake and takes a lot of time and effort if done manually. However, with an FMS, the process becomes much simpler and efficient as it helps manage finances, recording income and tracking expenses. This technologically driven system not only saves time but reduces errors and boosts the productivity of an organization.

Improved decision making

Financial decisions need to be accurate and updated and FMS kickstarts this process in no time. It allows you to make informed decisions on budgeting, expenditure and saving goals.

Technologically Driven Finances

Who wouldn’t want to get tasks done automatically? Through income tracking, expense recordsand recurring payments, FMS takes care of these repetitive tasks without the hassle of doing it on your own. It not only saves time but ensures nothing goes wrong in the financial statements and activities while maintaining accuracyand transparency.

Boosts Goal achievement and planning

Financial planning is critical for growth and progress. If you are planning a holiday or need to reach a financial goal, FMS will assist you in setting practical financial goals so that you stay on track without spending too much or too little. You can track your financial progress and adjust techniques accordingly which allows you to hit your goals with confidence.

Financial Security

Online banking and digital transactions demand financial security in this digital era. This is where FMS comes into play with its robust encryption feature in software. Encryption protects your financial data from fraud, scams and prying eyes, lending you the opportunity to safeguard your financial data. You can have a peaceful mind while your finances are taken care of through FMS software.

Kickstart your journey towards financial success with Blue Lotus 360 ERP software

The Blue Lotus 360 is your one-stop ERP solution provider in UK that helps manage accounts and delivers enterprise software to customers around the globe fromthe construction, manufacturing, and distribution industries.

It offers state-of-the-art applications to manage finances and track business progress so that you are always one step ahead of your competitors.

You can gain a competitive advantage by taking up Blue Lotus 360’s budget-friendly and faster ERP implementation catered to the preferred time zone, country, taxation, and currency. If you are a start-up or a well-developed business, Blue Lotus 360 adjusts to your ever-changing financial needs and ensures a smooth transition to success.