Did you know that every POS system will have a different level of integration to accounting, ecommerce, rental, shopmanagement and many other software modules? And the level of integration can affect your business productivity?
When discussing POS accounting software, you might not realize that there’s a difference between the terms “integrated” and “interfaced”. You’ll hear these terms used interchangeably but there’s a subtle (yet significant) difference between “integrated” and “interfaced” products.
For example, some POS systems interface (or link) to another accounting system like QuickBooks or Peachtree. And some POS systems will have fully integrated accounting built into the software. So what’s the difference?
Let’s start with their definitions (according to the dictionary)…
Interface: A point at which independent systems or diverse groups interact.
Integrated: To make into a whole by bringing all parts together; unify.
Like I said, a subtle, yet potentially significant difference.
In the software world, integrated modules use the same data files and information is updated in real-time. The data is consistent across all modules, offering maximum integrity – so you save time and avoid double-entry.
Interfaced modules use software protocols to translate and transfer data between them. Software Companies usually write interfaces so they can communicate with third party programs. The interface allows you to quickly send information to the third party program so you don’t have to re-key the information. The drawback is that the interface needs to be triggered manually and it doesn’t happen in real-time.
So what about your POS and accounting software? Should they be interfaced (linked)? Or should they be integrated (built-in)?
Well… it depends on your situation. I’ll try to explain your options, so you can decide for yourself.
Most POS systems in today’s market have point of sale, inventory, customers, purchasing, and accounts receivables built-in and tightly integrated into the software. All of these modules are tightly integrated for a good reason. In fact, it’s critical for all of them to seamlessly share and update information.
For example, when you create an invoice you’re using the “point of sale” module. When you complete an invoice, the point of sale module instantly updates your inventory quantities in the inventory database. The point of sale module also updates the customer history, accounts receivables, and sales history databases.
Without “complete integration” your inventory, accounts receivables and sales history will get out of date. Imagine how many problems that would cause. The software would be virtually useless.
On the other hand, modules like Accounts Payable and General Ledger don’t have to be built-in. In fact, most POS systems offer accounts payable and general ledger as optional solutions. The only problem is that every solution works different.
For example, some POS systems will link to other accounting software packages. Some POS systems will offer built-in accounting. Some POS systems won’t offer anything. And of course, every POS Company will tell you that their way works the best.
So what’s the difference?
Option #1 – Update your accounting software by hand
Some retailers will take their end of day reports from their POS software and enter daily transaction totals into the accounting software by hand. This is by far the cheapest method. And the most time consuming.
I don’t recommend this method. Why transfer everything by hand when most POS systems will send the information automatically? Not only is it a waste of time, but it’s also prone to errors. You’re better off letting the computer do the work.
Option #2 – Link to a separate accounting system
Many POS systems link to programs like QuickBooks, Peachtree, Simply Accounting, AccPac, or Business Works.
Most links allow you to send sales, purchases and inventory adjustment transactions from your POS software to the accounting software. Keep in mind, most interfaces require you to trigger them manually or they run during the end of day process.
Some POS systems offer more advanced links that update information in real-time, but they all work different. Here are the different types of links that I have seen:
- General Ledger Only Interface – Some POS systems will only interface to the general ledger. This means you have to update your accounts payable manually, which isn’t big deal, since there’s not much information to post. However, it does take a little extra time and it’s prone to human error.
- General Ledger and Accounts Payable Interface – This allows you to send information to both modules so you save a little time and more importantly, you reduce errors. Don’t forget that your accounts payable transactions flow into your general ledger. If you make a mistake in accounts payable, you’re general ledger totals will be wrong.
- Batch Summary Interfaces – Most POS interfaces send batch summaries to the accounting software (instead of each transaction). This is an efficient way to send information and reduces general ledger entries.
- Line Item Detail Interfaces – Some POS interfaces will send every line item detail (transaction) to the accounting software. This can be helpful because each journal entry usually includes more information, like the customer or invoice number. Then you can quickly trace the transaction back to the POS.
- Advanced / Integrated – Some POS systems offer advanced (integrated) links to QuickBooks and other accounting packages. These advanced links update accounting information instantly (in real-time). They can also include more information, making it easier to trace information back to your POS software.
Every interface has different features, but there are some inherent advantages to using a separate accounting system…
Advantages of a separate accounting package include:
- Save money – If you already have accounting software, you can save money since you don’t have to pay for the “add on” POS – accounting modules.
- No re-training – If you already have accounting software, you don’t have to learn another system of re-train employees.
- Better overall design – Stand alone accounting software packages are usually designed better than the packages built into POS systems. POS Companies usually devote most of their effort to the design of the POS and inventory modules, where Accounting Companies will naturally focus on the design of the accounting. This isn’t always the case, but it’s true in most situations.
Disadvantages of a separate accounting package include:
- Out-of-date info – Not many interfaces update information in real-time. The information is usually sent in batch files at the end of day. So your accounts payable and general ledger information is not always up-to-date. (This might not be an issue for you, since you can access current sales, receivables, purchases, inventory status and lots of information right in your POS software.)
- Learn both programs – You have to learn two different programs and user interfaces.
- Updates and maintenance can cause problems – For example, if QuickBooks has an update to their accounting software, you shouldn’t load it until the POS software has an update that supports it. Otherwise your accounting totals will be wrong!
- Difficult configuration – With interfaces you have to map your “POS system generated account numbers” to your “chart of accounts” in the accounting software. If it’s not set up properly, your general ledger reports will be wrong. When setting up this type of interface, you’ll need to get help from your accountant and the POS company.
Option #3 – Utilize accounting software that’s built-in and fully integrated
Some POS companies will offer their own accounts payable and general ledger software that’s tightly integrated and built into the POS software.
Some of the advantages of built-in (integrated) accounting include:
- Real-time updates – If the POS system sends line item detail, then all information is updated instantly in real-time. So your accounts payables and general ledger transactions are posted as soon as the sale or receiving transaction is completed in the POS.
- Learn one program – You only need to learn how to use one program.
- Update once – You only load updates into one software program. So you don’t have to worry about making sure your POS is updated and supports the new version of your accounting software.
- Quickly drill down – Sometimes you can drill down from your general ledger entries into transactions like invoices, receivables and inventory adjustments, making it really easy to trace information. For example, if you get audited by the sales tax police, you can quickly reference back to the customer name, invoice number and amount for every sales tax entry. This makes it easier to audit.
- Easy configuration – You don’t have to worry about mapping account numbers or making sure two different programs are communicating properly.
Some of the disadvantages include:
- Poor design – You could get stuck with poorly designed accounting software. Not all POS companies understand how to design a good accounting system. Just because they offer integrated accounting doesn’t mean it’s good. It’s not their specialty. Your odds are better if the accounting system was designed by specialists.
Whether the POS system uses an interface or it’s integrated, they all work different. And just because the sales literature says the accounting is integrated, doesn’t mean it really is. The words interfaced and integrated are often used interchangeably, even though they have different meanings.
In addition, some POS systems will not store or update enough information. If a piece of information is missing from their database or it’s not included in the interface, you’ll have to update information by hand. That’s why it’s important to ask the POS Company… “What information is sent to the accounting modules?”
It’s also important to choose a POS and accounting software with a proven track record. Because whether the software is built in or seperate, there can be plenty of problems with the software.
In order to figure out how the POS system truly handles accounts payable and general ledger accounting, ask the POS Company these questions:
- Do you offer General Ledger or Accounts Payable built into your software?
- Which accounting packages does the POS system interface to?
Questions about each interface:
- Does the interface link to the accounts payable?
- Is the accounts payable module updated instantly? Or do I have to import it manually?
- Does the POS software send line item detail or batch summaries to the accounts payable?
- What information is sent to accounts payables?
- Does the interface link to the general ledger?
- Does the POS software send line item details or batch summaries to the general ledger?
- Does each general ledger entry show information like the customer ID and transaction number so I can trace back to the invoice, purchase, or receivable transaction in the POS software?
- Does it update the general ledger instantly or do I have to post the transaction manually?
- What information is sent to the general ledger?
Questions about integrated accounting:
- Does the POS module send line item detail or batch summaries to the accounting module?
- Is the information updated in real-time?
- What information is sent?
- Does each general ledger entry show information like the customer ID and transaction number so I can trace back to the invoice, purchase, or receivable transactions?
- Can I view general ledger entries and drill down to view things like the invoices, adjustments, receivables, or purchase transactions?
As a side note, you’re going to have many of the same issues with other POS modules including payroll, ecommerce, rental, work orders, and third party applications. The level of integration and sophistication of each module will vary. As you’re comparing POS systems, always ask a lot of questions and test the software before you buy.
As you probably realized, both “built in” and “separate” accounting systems have pros and cons. In fact, I don’t have a preference either way. It really depends on your situation.
I know there’s a lot of information and options to consider, and it can get a little overwhelming.
That’s why I created some tools to help.
Here’s how to quickly find and choose the best POS and accounting software system for your business…
Your easiest and most effective route will be to use the POS Software Buyers Guide. It will make it much easier for you to throughly compare each POS – accounting system and figure out which one is best for your business.
A few things you’ll find in the buyers guide include:
- A detailed checklist so you don’t miss any important POS or accounting software features.
- An easy to use comparison template so you can determine which POS accounting system has the features that you need.
- A searchable list of 350 POS systems categorized by industry (apparel, motorcycle, liquor store, etc, etc).
- Over 200 unbiased POS software reviews that will make your decision easier.
- A step by step evaluation process that will ensure you choose a POS system that gives your business the highest return on investment and biggest boost in profits.
- An optional “filled in” comparison chart for certain types of retail businesses — it includes a detailed 459 feature comparison of 18 top retail POS – accounting systems and how they stack up against each other.
- And several other helpful tools…
You can learn more and check out the buyers guide here: http://www.possoftwareguide.com
To Your Success.