One of the primary purposes of a finance and accounting ecosystem is to capture transaction processing accurately and in a timely manner. Well-managed transaction processing is the result of dedicated finance and accounting departments working together to integrate a variety of tasks while introducing various controls to mitigate risk.
In this post, we will cover what transaction processing is, why it is so important to manage effectively, and how technology is being used to assist finance professionals in managing these processes more effectively.
What is Transaction Processing?
The term transaction processing has various meanings across industries. In finance, the term is used to describe the range of activities central to a business’s accounting and financial operations. Gartner has broken transaction processing into four distinct types: sales, purchases, receipts, and payments.
The tern is broad and is used to describe activities across business units that are reflected in the accounting records. This puts a great deal of demand on finance and accounting departments as the variety, complexity, and timing of transactions result in a need to manage many tasks.
Why is Transaction Processing Important?
Processing transactions is a primary concern for all finance and accounting ecosystems. The accurate reflection of the four general transaction types in a business’s accounting records is critical. Businesses process large volumes of transactions every day that range across each of the four categories.
Importance of Accurate Sales Processing
Sales are the fuel of any business. Behind each sale is a variety of activities. Accurate record keeping must be maintained throughout the sales process to ensure that customers receive their orders and businesses receive their payments.
Additionally, accurate sales processing has a direct impact on the amount of inventory held by the business and the amount of raw materials needed to produce each product.
Importance of Accurate Purchasing Processing
As businesses make sales and deplete inventory they need to acquire more materials to replenish inventory that has been sold. Supply chain professionals work diligently to manage inventory levels effectively to not inhibit the business with unnecessary costs.
Transactions occur at various levels in the procurement process and they must be accurately reflected in the business’s various systems.
Importance of Managing Receipts
Receipts from purchases and sales are critical when maintaining accurate accounting records. This is because the timing of receipts and payments is almost always different. Very few businesses operate on solely a cash basis.
This means that the majority rely on the receipts that they receive and produce to reconcile timing differences that occur between the time a receipt is received or produced and when money is received or paid.
Importance of Accurate Payment Tracking
Finally, accurate payment tracking is absolutely critical. A business with a great product and high sales volume can actually fail if they do not manage their payments effectively. Typically, businesses work to manage their receivables ahead of their payables.
This means that effective payment management can actually allow businesses to use their receivables to finance their payables. By timing payments to be made to vendors slower than payments are received from customers it puts significantly less cash demand on a business.
Using Technology to Manage Transaction Processing
As we touched on above, transaction processing results in a high volume of accounting entries and financial oversight. The need for financial controls exists at various levels within each transaction process and across different business units adding additional complexity to the financial ecosystem.
Because of this, it has become common for businesses to invest in technology helping to manage all of the transaction processing that takes place. Many of these systems also provide critical data between departments in real-time allowing for greater communication and efficiency while reducing risk.
Often businesses add systems as they grow larger, resulting in disparate systems that do individual processes well but do not provide insight across interconnected departments.
While it is not always financially feasible, many businesses adopt sophisticated Enterprise Resource Planning software that helps to manage transaction processing across various departments in real-time. Some of these applications provide metrics and other important information in dashboards that managers use to assist in the daily planning and execution of operations.
Using Datarails, a Budgeting and Forecasting Solution
Datarails replaces spreadsheets with real-time data and integrates fragmented workbooks and data sources into one centralized location. This allows users to work in the comfort of Microsoft Excel with the support of a much more sophisticated data management system at their disposal.
Every finance department knows how tedious building a budget and forecast can be. Integrating cash flow forecasts with real-time data and up-to-date budgets is a powerful tool that makes forecasting cash easier, more efficient, and shifts the focus to cash analytics.
Regardless of the budgeting approach your organization adopts, it requires big data to ensure accuracy, timely execution, and of course, monitoring.