integrate accounting software to inventory

Should you integrate your accounting software with inventory management system?

Too many small businesses are automating but not optimising. All too often, those missed chances equate to lost profits. Hopefully, you’ve already been convinced of the benefits of accounting software and having an inventory management system.

But better than just hope, you can find specific areas to enhance your company’s backend the right way. Starting with integrating these two systems together.

Why Integrate Accounting Software with Inventory Management?

A shocking amount of capital is tied up in inventory. 

Inventory along with accounts receivable and accounts payable has tied up $1.1 trillion in cash – equivalent to 7% of the U.S. GDP. (Source: Capterra

What does this mean?

Every opportunity to free up cash should be grabbed. To do so, companies need a cross-functional system – an integrated system between operations and accounting.

An integration like this between your accounting software and inventory management software improves your ability to plan effectively, execute predictably with customers and minimise labour costs and errors associated with time-intensive and manual reconciliation.

The three key benefits for a small business to integrate inventory and accounting software are:

  • Optimising inventory to meet product availability and fundamental ROI goals
  • Providing inventory visibility to supply chain partners
  • Creating an accurate financial report for better decision making and auditing 

1. Inventory Optimisation

Customer-Investor Satisfaction

The key to inventory optimisation is finding the right balance between customer satisfaction and investor satisfaction. 

Customers want their products “fresh”, at the highest quality, on time, on demand. Investors on the other hand, prefer not to have too much working capital tied up in inventory.

Having your inventory software plugged into your cloud based accounting software gives you real-time visibility of your financial limits. 

Should you take on the order? When can you have it delivered? How much are you able to hold to meet demand, without risking losing the sale.

Maximising Cash Flow

You spend cash to buy supplies. That inventory turns back into cash when it sells.

When your inventory is too high, you hurt your cash flow because you’re limiting your expenditure. Some businesses end up having to externally finance their regular operations because they made the mistake of committing too much.

On the other hand, obviously too low inventory leads to you hurting your cash flow because you decrease revenue. If you only have a small supply to sell, you can only bring in a small amount of sales.

Understanding the different types of business cash flow (with accounting software) and basing decisions on that can help you get the most out of your business activities (inventory management). 

You might be interested in: The small business owner’s guide: How to manage and increase cash flow

2. Supply Chain Visibility 

Establishing Trust from Partners

Many small businesses use supply chain partners to manage their shipments and warehousing. To do so, the inventory management software must be integrated not only with the company’s accounting system, but also the partners’ logistics systems.

By being able to see up-to-the-minute inventory levels, suppliers can ensure that their products have arrived at the warehousing facility. Retailers can be assured that there’s sufficient stock for their order, etc. 

The seamless exchange of data allows partners to reduce overall workload and decrease errors when transferring information.

Thus, the increased visibility allows better decision making, disbursement of monies and smoother processing.

Order Fulfillment

63% of the time.

That is how frequently inventory is accurate in retail businesses. The number for manufacturers is not too far off either. This statistic speaks to the lack of visibility that plagues companies across industries.

63% accuracy is low! If records are inaccurate more than one-third of the time, that means it’s a failure at some critical point on the logistics chain.

Either inaccurate (or inaccessible) numbers are resulting in the wrong proportion of goods being allowed to move, or your ability to track inventory movement just isn’t up to mark. And sometimes, it isn’t even your fault. It could be due to someone up the logistics line.

Whatever the case, you’re putting yourself in a position where you don’t know if you can fulfil an order or you have to restart the production flow in order to meet demand.

If inventory management is such a huge monster to tackle, imagine if there were lag times and inefficient data transfer between your inventory management software your accounting system.

4. Accurate Financial Reporting

Ensuring Financial Integrity

Ensuring your financial reports and tax returns are accurate is fundamental to investors and compliance agencies. 

As mentioned above, since inventory value can be a significant component of a company’s assets, the recorded value must be matched to the physical value in the warehouse.

The best way to have that done is to integrate the movements in your inventory system with the accounts in your accounting software. This way, everything is automatic and backed up in the cloud.

You might be interested in: The small business guide to cloud accounting

What to Look For in an Accounting and Inventory Management Software

In today’s demanding world, speed and accuracy is everything. So when looking for your next cloud based accounting and inventory software for your small business, see that they:

  • Can integrate easily with an API (even better, have them built in one single platform)
  • Have real-time and reconcilable functions
  • Are simple to use

Streamline your processes with a cloud based accounting and inventory management software today.

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