E-Commerce - Overview

E-Commerce or Electronics Commerce is a methodology of modern

business, which addresses the need of business organizations, vendors and
customers to reduce cost and improve the quality of goods and services
while increasing the speed of delivery. Ecommerce refers to the paperless
exchange of business information using the following ways −

 Electronic Data Exchange (EDI)

 Electronic Mail (e-mail)

 Electronic Bulletin Boards

 Electronic Fund Transfer (EFT)

 Other Network-based technologies

Features
E-Commerce provides the following features −

 Non-Cash Payment − E-Commerce enables the use of credit cards, debit

cards, smart cards, electronic fund transfer via bank's website, and other modes
of electronics payment.
  24x7 Service availability − E-commerce automates the business of
enterprises and the way they provide services to their customers. It is available
anytime, anywhere.

 Advertising / Marketing − E-commerce increases the reach of advertising of

products and services of businesses. It helps in better marketing management
of products/services.

 Improved Sales − Using e-commerce, orders for the products can be

generated anytime, anywhere without any human intervention. It gives a big
boost to existing sales volumes.

 Support − E-commerce provides various ways to provide pre-sales and post-

sales assistance to provide better services to customers.

 Inventory Management − E-commerce automates inventory management.

Reports get generated instantly when required. Product inventory management
becomes very efficient and easy to maintain.

 Communication improvement − E-commerce provides ways for faster,

efficient, reliable communication with customers and partners.

 Traditional Commerce v/s E-Commerce

Sr. Traditional Commerce E-Commerce
No.

1 Heavy dependency on Information sharing is made easy via

information exchange from electronic communication channels
person to person. making little dependency on person to
person information exchange.

2 Communication/ transaction are Communication or transaction can be

done in synchronous way. done in asynchronous way. Electronics
Manual intervention is required system automatically handles when to
for each communication or pass communication to required
transaction. person or do the transactions.
3 It is difficult to establish and A uniform strategy can be easily
maintain standard practices in established and maintain in e-
traditional commerce. commerce.

4 Communications of business In e-Commerce or Electronic Market,

depends upon individual skills. there is no human intervention.

5 Unavailability of a uniform E-Commerce website provides user a

platform as traditional platform where al l information is
commerce depends heavily on available at one place.
personal communication.

6 No uniform platform for E-Commerce provides a universal

information sharing as it platform to support commercial /
depends heavily on personal business activities across the globe.
communication.

E-Commerce advantages can be broadly classified in three major categories

 Advantages to Organizations

 Advantages to Consumers

 Advantages to Society

Advantages to Organizations
 Using e-commerce, organizations can expand their market to national and
international markets with minimum capital investment. An organization can
easily locate more customers, best suppliers, and suitable business partners
across the globe.
 E-commerce helps organizations to reduce the cost to create process, distribute,
retrieve and manage the paper based information by digitizing the information.
 E-commerce improves the brand image of the company.
 E-commerce helps organization to provide better customer services.
 E-commerce helps to simplify the business processes and makes them faster
and efficient.
 E-commerce reduces the paper work.
  E-commerce increases the productivity of organizations. It supports "pull" type
supply management. In "pull" type supply management, a business process
starts when a request comes from a customer and it uses just-in-time
manufacturing way.

Advantages to Customers
 It provides 24x7 support. Customers can enquire about a product or service and
place orders anytime, anywhere from any location.
 E-commerce application provides users with more options and quicker delivery
of products.
 E-commerce application provides users with more options to compare and select
the cheaper and better options.
 A customer can put review comments about a product and can see what others
are buying, or see the review comments of other customers before making a
final purchase.
 E-commerce provides options of virtual auctions.
 It provides readily available information. A customer can see the relevant
detailed information within seconds, rather than waiting for days or weeks.
 E-Commerce increases the competition among organizations and as a result,
organizations provides substantial discounts to customers.

Advantages to Society
 Customers need not travel to shop a product, thus less traffic on road and low
air pollution.
 E-commerce helps in reducing the cost of products, so less affluent people can
also afford the products.
 E-commerce has enabled rural areas to access services and products, which are
otherwise not available to them.
 E-commerce helps the government to deliver public services such as healthcare,
education, social services at a reduced cost and in an improved manner.

E-Commerce - Disadvantages
The disadvantages of e-commerce can be broadly classified into two major
categories −
  Technical disadvantages

 Non-Technical disadvantages

Technical Disadvantages
 There can be lack of system security, reliability or standards owing to poor
implementation of e-commerce.
 The software development industry is still evolving and keeps changing rapidly.
 In many countries, network bandwidth might cause an issue.
 Special types of web servers or other software might be required by the vendor,
setting the e-commerce environment apart from network servers.
 Sometimes, it becomes difficult to integrate an e-commerce software or website
with existing applications or databases.
 There could be software/hardware compatibility issues, as some e-commerce
software may be incompatible with some operating system or any other
component.

Non-Technical Disadvantages
 Initial cost − The cost of creating/building an e-commerce application in-house
may be very high. There could be delays in launching an e-Commerce
application due to mistakes, and lack of experience.
 User resistance − Users may not trust the site being an unknown faceless
seller. Such mistrust makes it difficult to convince traditional users to switch
from physical stores to online/virtual stores.
 Security/ Privacy − It is difficult to ensure the security or privacy on online
transactions.
 Lack of touch or feel of products during online shopping is a drawback.
 E-commerce applications are still evolving and changing rapidly.
 Internet access is still not cheaper and is inconvenient to use for many potential
customers, for example, those living in remote villages
E-commerce Business Models

E-commerce business models can generally be categorized into the

following categories.

 Business - to - Business (B2B)

 Business - to - Consumer (B2C)
 Consumer - to - Consumer (C2C)
 Consumer - to - Business (C2B)
  Business - to - Government (B2G)
 Government - to - Business (G2B)
 Government - to - Citizen (G2C)

Business - to - Business
A website following the B2B business model sells its products to an
intermediate buyer who then sells the product to the final customer. As an
example, a wholesaler places an order from a company's website and after
receiving the consignment, sells the end product to the final customer who
comes to buy the product at one of its retail outlets.

Business - to - Consumer
A website following the B2C business model sells its products directly to a
customer. A customer can view the products shown on the website. The
customer can choose a product and order the same. The website will then
send a notification to the business organization via email and the
organization will dispatch the product/goods to the customer.
Consumer - to - Consumer
A website following the C2C business model helps consumers to sell their
assets like residential property, cars, motorcycles, etc., or rent a room by
publishing their information on the website. Website may or may not charge
the consumer for its services. Another consumer may opt to buy the
product of the first customer by viewing the post/advertisement on the
website.

Consumer - to - Business
In this model, a consumer approaches a website showing multiple business
organizations for a particular service. The consumer places an estimate of
amount he/she wants to spend for a particular service. For example, the
comparison of interest rates of personal loan/car loan provided by various
banks via websites. A business organization who fulfills the consumer's
requirement within the specified budget, approaches the customer and
provides its services.
Business - to - Government
B2G model is a variant of B2B model. Such websites are used by
governments to trade and exchange information with various business
organizations. Such websites are accredited by the government and provide
a medium to businesses to submit application forms to the government.

Government - to - Business
Governments use B2G model websites to approach business organizations.
Such websites support auctions, tenders, and application submission
functionalities.

Government - to - Citizen
Governments use G2C model websites to approach citizen in general. Such
websites support auctions of vehicles, machinery, or any other material.
Such website also provides services like registration for birth, marriage or
death certificates. The main objective of G2C websites is to reduce the
average time for fulfilling citizen’s requests for various government
services.

E-Commerce - Payment Systems

E-commerce sites use electronic payment, where electronic payment refers
to paperless monetary transactions. Electronic payment has revolutionized
the business processing by reducing the paperwork, transaction costs, and
labor cost. Being user friendly and less time-consuming than manual
processing, it helps business organization to expand its market
reach/expansion. Listed below are some of the modes of electronic
payments −
  Credit Card

 Debit Card

 Smart Card

 E-Money

 Electronic Fund Transfer (EFT)

Credit Card
Payment using credit card is one of most common mode of electronic
payment. Credit card is small plastic card with a unique number attached
with an account. It has also a magnetic strip embedded in it which is used
to read credit card via card readers. When a customer purchases a product
via credit card, credit card issuer bank pays on behalf of the customer and
customer has a certain time period after which he/she can pay the credit
card bill. It is usually credit card monthly payment cycle. Following are the
actors in the credit card system.

 The card holder − Customer

 The merchant − seller of product who can accept credit card payments.

 The card issuer bank − card holder's bank

 The acquirer bank − the merchant's bank

 The card brand − for example , visa or Mastercard.

Credit Card Payment Proces

Step Description

Step1 Bank issues and activates a credit card to the customer on his/her request.

Step2 The customer presents the credit card information to the merchant site or to
the merchant from whom he/she wants to purchase a product/service.

Step3 Merchant validates the customer's identity by asking for approval from the card
brand company.

Step 4 Card brand company authenticates the credit card and pays the transaction by
 credit. Merchant keeps the sales slip.

Step 5 Merchant submits the sales slip to acquirer banks and gets the service charges
paid to him/her.

Step 6 Acquirer bank requests the card brand company to clear the credit amount and
gets the payment.

Step 7 Now the card brand company asks to clear the amount from the issuer bank
and the amount gets transferred to the card brand company.

Debit Card
Debit card, like credit card, is a small plastic card with a unique number
mapped with the bank account number. It is required to have a bank
account before getting a debit card from the bank. The major difference
between a debit card and a credit card is that in case of payment through
debit card, the amount gets deducted from the card's bank account
immediately and there should be sufficient balance in the bank account for
the transaction to get completed; whereas in case of a credit card
transaction, there is no such compulsion.

Debit cards free the customer to carry cash and cheques. Even merchants
accept a debit card readily. Having a restriction on the amount that can be
withdrawn in a day using a debit card helps the customer to keep a check
on his/her spending.

Smart Card
Smart card is again similar to a credit card or a debit card in appearance,
but it has a small microprocessor chip embedded in it. It has the capacity to
store a customer’s work-related and/or personal information. Smart cards
are also used to store money and the amount gets deducted after every
transaction.
Smart cards can only be accessed using a PIN that every customer is
assigned with. Smart cards are secure, as they store information in
encrypted format and are less expensive/provides faster processing.
Mondex and Visa Cash cards are examples of smart cards.

E-Money
E-Money transactions refer to situation where payment is done over the
network and the amount gets transferred from one financial body to
another financial body without any involvement of a middleman. E-money
transactions are faster, convenient, and saves a lot of time.

Online payments done via credit cards, debit cards, or smart cards are
examples of emoney transactions. Another popular example is e-cash. In
case of e-cash, both customer and merchant have to sign up with the bank
or company issuing e-cash.

Electronic Fund Transfer

It is a very popular electronic payment method to transfer money from one
bank account to another bank account. Accounts can be in the same bank
or different banks. Fund transfer can be done using ATM (Automated Teller
Machine) or using a computer.

Nowadays, internet-based EFT is getting popular. In this case, a customer

uses the website provided by the bank, logs in to the bank's website and
registers another bank account. He/she then places a request to transfer
certain amount to that account. Customer's bank transfers the amount to
other account if it is in the same bank, otherwise the transfer request is
forwarded to an ACH (Automated Clearing House) to transfer the amount to
other account and the amount is deducted from the customer's account.
Once the amount is transferred to other account, the customer is notified of
the fund transfer by the bank.

E-Commerce - Security Systems

Security is an essential part of any transaction that takes place over the
internet. Customers will lose his/her faith in e-business if its security is
compromised. Following are the essential requirements for safe e-
payments/transactions −
  Confidentiality − Information should not be accessible to an unauthorized
person. It should not be intercepted during the transmission.
 Integrity − Information should not be altered during its transmission over the
network.
 Availability − Information should be available wherever and whenever required
within a time limit specified.
 Authenticity − There should be a mechanism to authenticate a user before
giving him/her an access to the required information.
 Non-Repudiability − It is the protection against the denial of order or denial of
payment. Once a sender sends a message, the sender should not be able to
deny sending the message. Similarly, the recipient of message should not be
able to deny the receipt.
 Encryption − Information should be encrypted and decrypted only by an
authorized user.
 Auditability − Data should be recorded in such a way that it can be audited for
integrity requirements.
Measures to ensure Security
Major security measures are following −

 Encryption − It is a very effective and practical way to safeguard the data

being transmitted over the network. Sender of the information encrypts the
data using a secret code and only the specified receiver can decrypt the data
using the same or a different secret code.
 Digital Signature − Digital signature ensures the authenticity of the
information. A digital signature is an e-signature authenticated through
encryption and password.
 Security Certificates − Security certificate is a unique digital id used to verify
the identity of an individual website or user.

Security Protocols in Internet

We will discuss here some of the popular protocols used over the internet to
ensure secured online transactions.

Secure Socket Layer (SSL)

It is the most commonly used protocol and is widely used across the
industry. It meets following security requirements −

 Authentication
  Encryption
 Integrity
 Non-reputability
"https://" is to be used for HTTP urls with SSL, where as "http:/" is to be
used for HTTP urls without SSL.

Secure Hypertext Transfer Protocol (SHTTP)

SHTTP extends the HTTP internet protocol with public key encryption,
authentication, and digital signature over the internet. Secure HTTP
supports multiple security mechanism, providing security to the end-users.
SHTTP works by negotiating encryption scheme types used between the
client and the server.

Secure Electronic Transaction

It is a secure protocol developed by MasterCard and Visa in collaboration.
Theoretically, it is the best security protocol. It has the following
components −
 Card Holder's Digital Wallet Software − Digital Wallet allows the
card holder to make secure purchases online via point and click
interface.
 Merchant Software − This software helps merchants to
communicate with potential customers and financial institutions in a
secure manner.
 Payment Gateway Server Software − Payment gateway provides
automatic and standard payment process. It supports the process for
merchant's certificate request.
 Certificate Authority Software − This software is used by financial
institutions to issue digital certificates to card holders and merchants,
and to enable them to register their account agreements for secure
electronic commerce.
E-Commerce - B2B Model
A website following the B2B business model sells its products to an
intermediate buyer who then sells the products to the final customer. As an
example, a wholesaler places an order from a company's website and after
receiving the consignment, it sells the endproduct to the final customer who
comes to buy the product at the wholesaler's retail outlet.

B2B identifies both the seller as well as the buyer as business entities. B2B
covers a large number of applications, which enables business to form
relationships with their distributors, re-sellers, suppliers, etc. Following are
the leading items in B2B eCommerce.

 Electronics

 Shipping and Warehousing

 Motor Vehicles

 Petrochemicals

 Paper

 Office products

 Food

 Agriculture
Key Technologies
Following are the key technologies used in B2B e-commerce −

 Electronic Data Interchange (EDI) − EDI is an inter-organizational exchange

of business documents in a structured and machine processable format.

 Internet − Internet represents the World Wide Web or the network of networks
connecting computers across the world.

 Intranet − Intranet represents a dedicated network of computers within a

single organization.

 Extranet − Extranet represents a network where the outside business partners,

suppliers, or customers can have a limited access to a portion of enterprise
intranet/network.

 Back-End Information System Integration − Back-end information systems

are database management systems used to manage the business data.

Architectural Models
Following are the architectural models in B2B e-commerce −

 Supplier Oriented marketplace − In this type of model, a common

marketplace provided by supplier is used by both individual customers as well
as business users. A supplier offers an e-stores for sales promotion.

 Buyer Oriented marketplace − In this type of model, buyer has his/her own
market place or e-market. He invites suppliers to bid on product's catalog. A
Buyer company opens a bidding site.

 Intermediary Oriented marketplace − In this type of model, an intermediary

company runs a market place where business buyers and sellers can transact
with each other.
E-Commerce - B2C Model
In B2C model, a business website is a place where all the transactions take
place directly between a business organization and a consumer.

In the B2C model, a consumer goes to the website, selects a catalog, orders
the catalog, and an email is sent to the business organization. After
receiving the order, goods are dispatched to the customer. Following are
the key features of the B2C model −

 Heavy advertising required to attract customers.

 High investments in terms of hardware/software.

 Support or good customer care service.

Consumer Shopping Procedure

Following are the steps used in B2C e-commerce −A consumer −

 determines the requirement.

 searches available items on the website meeting the requirment.
 compares similar items for price, delivery date or any other terms.
 places the order.
 pays the bill.
 receives the delivered item and review/inspect them.
 consults the vendor to get after service support or returns the product if not
satisfied with the delivered product.
Disintermediation and Re-intermediation
In traditional commerce, there are intermediating agents like wholesalers,
distributors, and retailers between the manufacturer and the consumer. In
B2C websites, a manufacturer can sell its products directly to potential
consumers. This process of removal of business layers responsible for
intermediary functions is called disintermediation.

Nowadays, new electronic intermediary breeds such as e-mall and product

selection agents are emerging. This process of shifting of business layers
responsible for intermediary functions from traditional to electronic
mediums is called re-intermediation.
E-Commerce - EDI
EDI stands for Electronic Data Interchange. EDI is an electronic way of
transferring business documents in an organization internally, between its
various departments or externally with suppliers, customers, or any
subsidiaries. In EDI, paper documents are replaced with electronic
documents such as word documents, spreadsheets, etc.

EDI Documents
Following are the few important documents used in EDI −

 Invoices

 Purchase orders

 Shipping Requests

 Acknowledgement

 Business Correspondence letters

 Financial information letters

Steps in an EDI System
Following are the steps in an EDI System.

 A program generates a file that contains the processed document.

 The document is converted into an agreed standard format.

 The file containing the document is sent electronically on the network.

 The trading partner receives the file.

 An acknowledgement document is generated and sent to the originating

organization.

Advantages of an EDI System

Following are the advantages of having an EDI system.

 Reduction in data entry errors. − Chances of errors are much less while
using a computer for data entry.

 Shorter processing life cycle − Orders can be processed as soon as they are
entered into the system. It reduces the processing time of the transfer
documents.

 Electronic form of data − It is quite easy to transfer or share the data, as it is

present in electronic format.

 Reduction in paperwork − As a lot of paper documents are replaced with

electronic documents, there is a huge reduction in paperwork.

 Cost Effective − As time is saved and orders are processed very effectively,
EDI proves to be highly cost effective.

 Standard Means of communication − EDI enforces standards on the content

of data and its format which leads to clearer communication.
Internet
Internet is defined as an Information super Highway, to access information
over the web. However, It can be defined in many ways as follows:

 Internet is a world-wide global system of interconnected computer networks.

 Internet uses the standard Internet Protocol (TCP/IP).

 Every computer in internet is identified by a unique IP address.

 IP Address is a unique set of numbers (such as 110.22.33.114) which identifies

a computer location.

 A special computer DNS (Domain Name Server) is used to give name to the IP
Address so that user can locate a computer by a name.

 For example, a DNS server will resolve a

name http://www.tutorialspoint.com to a particular IP address to uniquely
identify the computer on which this website is hosted.

 Internet is accessible to every user all over the world.

Evolution
The concept of Internet was originated in 1969 and has undergone several
technological & Infrastructural changes as discussed below:

 The origin of Internet devised from the concept of Advanced Research Project
Agency Network (ARPANET).

 ARPANET was developed by United States Department of Defense.

 Basic purpose of ARPANET was to provide communication among the various

bodies of government.

 Initially, there were only four nodes, formally called Hosts.

 In 1972, the ARPANET spread over the globe with 23 nodes located at different

countries and thus became known as Internet.

 By the time, with invention of new technologies such as TCP/IP protocols, DNS,
WWW, browsers, scripting languages etc.,Internet provided a medium to
publish and access information over the web.

Advantages
Internet covers almost every aspect of life, one can think of. Here, we will
discuss some of the advantages of Internet:

 Internet allows us to communicate with the people sitting at remote locations.

There are various apps available on the wed that uses Internet as a medium for
communication. One can find various social networking sites such as:
 o Facebook

o Twitter

o Yahoo

o Google+

o Flickr

o Orkut

 One can surf for any kind of information over the internet. Information regarding
various topics such as Technology, Health & Science, Social Studies,
Geographical Information, Information Technology, Products etc can be surfed
with help of a search engine.

 Apart from communication and source of information, internet also serves a

medium for entertainment. Following are the various modes for entertainment
over internet.

o Online Television

o Online Games

o Songs

o Videos

o Social Networking Apps

 Internet allows us to use many services like:

o Internet Banking

o Matrimonial Services

o Online Shopping

o Online Ticket Booking

o Online Bill Payment

o Data Sharing

o E-mail

 Internet provides concept of electronic commerce, that allows the business

deals to be conducted on electronic systems
Disadvantages
However, Internet has prooved to be a powerful source of information in
almost every field, yet there exists many disadvanatges discussed below:

 There are always chances to loose personal information such as name, address,
credit card number. Therefore, one should be very careful while sharing such
information. One should use credit cards only through authenticated sites.

 Another disadvantage is the Spamming.Spamming corresponds to the

unwanted e-mails in bulk. These e-mails serve no purpose and lead to
obstruction of entire system.

 Virus can easily be spread to the computers connected to internet. Such virus

attacks may cause your system to crash or your important data may get
deleted.

 Also a biggest threat on internet is pornography. There are many pornographic

sites that can be found, letting your children to use internet which indirectly
affects the children healthy mental life.

 There are various websites that do not provide the authenticated information.
This leads to misconception among many people.
Intranet
Intranet is defined as private network of computers within an organization
with its own server and firewall. Moreover we can define Intranet as:

 Intranet is system in which multiple PCs are networked to be connected to each

other. PCs in intranet are not available to the world outside of the intranet.
 Usually each company or organization has their own Intranet network and
members/employees of that company can access the computers in their
intranet.
 Every computer in internet is identified by a unique IP address.
 Each computer in Intranet is also identified by a IP Address, which is unique
among the computers in that Intranet.

Benefits
Intranet is very efficient and reliable network system for any organization.
It is beneficial in every aspect such as collaboration, cost-effectiveness,
security, productivity and much more.
Communication
Intranet offers easy and cheap communication within an organization.
Employees can communicate using chat, e-mail or blogs.

Time Saving
Information on Intranet is shared in real time.

Collaboration
Information is distributed among the employees as according to
requirement and it can be accessed by the authorized users, resulting in
enhanced teamwork.

Platform Independency
Intranet can connect computers and other devices with different
architecture.

Cost Effective
Employees can see the data and other documents using browser rather
than printing them and distributing duplicate copies among the employees,
which certainly decreases the cost.

Workforce Productivity
Data is available at every time and can be accessed using company
workstation. This helps the employees work faster.
Business Management
It is also possible to deploy applications that support business operations.

Security
Since information shared on intranet can only be accessed within an
organization, therefore there is almost no chance of being theft.

Specific Users
Intranet targets only specific users within an organization therefore, once
can exactly know whom he is interacting.

Immediate Updates
Any changes made to information are reflected immediately to all the users.

Issues
Apart from several benefits of Intranet, there also exist some issues.. These
issues are shown in the following diagram:
Applications
Intranet applications are same as that of Internet applications. Intranet
applications are also accessed through a web browser. The only difference
is that, Intranet applications reside on local server while Internet
applications reside on remote server. Here, we've discussed some of these
applications:

Document publication applications

Document publication applications allow publishing documents such as
manuals, software guide, employee profits etc without use of paper.

Electronic resources applications

It offers electronic resources such as software applications, templates and
tools, to be shared across the network.

Interactive Communication applications

Like on internet, we have e-mail and chat like applications for Intranet,
hence offering an interactive communication among employees.

Support for Internet Applications

Intranet offers an environment to deploy and test applications before
placing them on Internet.
Internet vs. Intranet
Apart from similarities there are some differences between the two.
Following are the differences between Internet and Intranet:

Intranet Internet

Localized Network. Worldwide Network

Doesn't have access to Intranet Have access to Internet.

More Expensive Less Expensive

More Safe Less Safe

More Reliability Less Reliability

Extranet
Extranet refers to network within an organization, using internet to connect
to the outsiders in controlled manner. It helps to connect businesses with
their customers and suppliers and therefore allows working in a
collaborative manner.
Implementation
Extranet is implemented as a Virtual Private Networks (VPN) because it
uses internet to connect to corporate organization and there is always a
threat to information security. VPN offers a secure network in public
infrastructure (Internet).
Key Points

 The packet is encapsulated at boundary of networks in IPSEC complaint routers.

 It uses an encryption key to encapsulate packets and IP addresses as well.
 The packet is decoded only by the IPSEC complaint routers or servers.
 The message is sent over VPN via VPN Tunnel and this process is known as
tunneling.

VPN uses Internet Protocol Security Architecture (IPSEC) Protocol to

provide secure transactions by adding an additional security layer to TCP/IP
protocol. This layer is created by encapsulating the IP packet to a new IP
packet as shown in the following diagram:

Benefits
Extranet proves to be a successful model for all kind of businesses whether
small or big. Here are some of the advantages of extranet for employees,
suppliers, business partners, and customers:
Issues
Apart for advantages there are also some issues associated with extranet.
These issues are discussed below:

Hosting
Where the extranet pages will be held i.e. who will host the extranet pages.
In this context there are two choices:

 Host it on your own server.

 Host it with an Internet Service Provider (ISP) in the same way as web pages.

But hosting extranet pages on your own server requires high bandwidth
internet connection which is very costly.

Security
Additional firewall security is required if you host extranet pages on your
own server which result in a complex security mechanism and increase
work load.
Accessing Issues
Information can not be accessed without internet connection. However,
information can be accessed in Intranet without internet connection.

Decreased Interaction
It decreases the face to face interaction in the business which results in lack
of communication among customers, business partners and suppliers.

Extranet vs. Intranet

The following table shows differences between Extranet and Intranet:

Extranet Intranet

Internal network that can be accessed Internal network that can not
externally. be accessed externally.

Extranet is extension of company's Intranet. Only limited users of a

company.

For limited external communication between Only for communication within a

customers, suppliers and business partners. company.

Internet Domain Name System

When DNS was not into existence, one had to download a Host
filecontaining host names and their corresponding IP address. But with
increase in number of hosts of internet, the size of host file also increased.
This resulted in increased traffic on downloading this file. To solve this
problem the DNS system was introduced.

Domain Name System helps to resolve the host name to an address. It

uses a hierarchical naming scheme and distributed database of IP addresses
and associated names
IP Address
IP address is a unique logical address assigned to a machine over the
network. An IP address exhibits the following properties:

 IP address is the unique address assigned to each host present on Internet.

 IP address is 32 bits (4 bytes) long.
 IP address consists of two components: network component and host
component.
 Each of the 4 bytes is represented by a number from 0 to 255, separated with
dots. For example 137.170.4.124
IP address is 32-bit number while on the other hand domain names are easy to
remember names. For example, when we enter an email address we always enter a
symbolic string such as webmaster@tutorialspoint.com.

Uniform Resource Locator (URL)

Uniform Resource Locator (URL) refers to a web address which uniquely
identifies a document over the internet.
This document can be a web page, image, audio, video or anything else present on the
web.

For
example, www.tutorialspoint.com/internet_technology/index.htmlis
an URL to the index.html which is stored on tutorialspoint web server under
internet_technology directory.

URL Types
There are two forms of URL as listed below:

 Absolute URL
 Relative URL

ABSOLUTE URL
Absolute URL is a complete address of a resource on the web. This
completed address comprises of protocol used, server name, path name
and file name.

For example http:// www.tutorialspoint.com / internet_technology

/index.htm. where:
  http is the protocol.
 tutorialspoint.com is the server name.
 index.htm is the file name.

The protocol part tells the web browser how to handle the file. Similarly we
have some other protocols also that can be used to create URL are:
 FTP
 https
 Gopher
 mailto
 news

RELATIVE URL
Relative URL is a partial address of a webpage. Unlike absolute URL, the
protocol and server part are omitted from relative URL.
Relative URLs are used for internal links i.e. to create links to file that are part of same
website as the WebPages on which you are placing the link.

For example, to link an image on

tutorialspoint.com/internet_technology/internet_referemce_models, we can use
the relative URL which can take the form like /internet_technologies/internet-
osi_model.jpg.

Difference between Absolute and Relative URL

Absolute URL Relative URL

Used to link web pages on different Used to link web pages within the same
websites website.

Difficult to manage. Easy to Manage

Changes when the server name or Remains same even of we change the server
directory name changes name or directory name.

Take time to access Comparatively faster to access.

Domain Name System Architecture

The Domain name system comprises of Domain Names, Domain Name
Space, Name Server that have been described below:
Domain Names
Domain Name is a symbolic string associated with an IP address. There are
several domain names available; some of them are generic such as com,
edu, gov, net etc, while some country level domain names such as au, in,
za, usetc.

The following table shows the Generic Top-Level Domain names:

Domain Name Meaning

Com Commercial business

Edu Education

Gov U.S. government agency

Int International entity

Mil U.S. military

Net Networking organization

Org Non profit organization

The following table shows the Country top-level domain names:

Domain Name Meaning

Au Australia

In India

Cl Chile

Fr France

Us United States

Za South Africa

Uk United Kingdom

Jp Japan
 es Spain

de Germany

ca Canada

ee Estonia

hk Hong Kong

Domain Name Space

The domain name space refers a hierarchy in the internet naming structure.
This hierarchy has multiple levels (from 0 to 127), with a root at the top.
The following diagram shows the domain name space hierarchy:

In the above diagram each subtree represents a domain. Each domain can
be partitioned into sub domains and these can be further partitioned and so
on.

Name Server
Name server contains the DNS database. This database comprises of
various names and their corresponding IP addresses. Since it is not possible
for a single server to maintain entire DNS database, therefore, the
information is distributed among many DNS servers.

 Hierarchy of server is same as hierarchy of names.

  The entire name space is divided into the zones

Zones
Zone is collection of nodes (sub domains) under the main domain. The
server maintains a database called zone file for every zone.

If the domain is not further divided into sub domains then domain and zone refers to
the same thing.

The information about the nodes in the sub domain is stored in the servers
at the lower levels however; the original server keeps reference to these
lower levels of servers.

TYPES OF NAME SERVERS

Following are the three categories of Name Servers that manages the entire
Domain Name System:

 Root Server
 Primary Server
 Secondary Server
ROOT SERVER

Root Server is the top level server which consists of the entire DNS tree. It
does not contain the information about domains but delegates the authority
to the other server
PRIMARY SERVERS

Primary Server stores a file about its zone. It has authority to create,
maintain, and update the zone file.
SECONDARY SERVER

Secondary Server transfers complete information about a zone from

another server which may be primary or secondary server. The secondary
server does not have authority to create or update a zone file.

DNS Working
DNS translates the domain name into IP address automatically. Following
steps will take you through the steps included in domain resolution process:

 When we type www.tutorialspoint.com into the browser, it asks the local DNS

Server for its IP address.
Here the local DNS is at ISP end.

 When the local DNS does not find the IP address of requested domain name, it
forwards the request to the root DNS server and again enquires about IP
address of it.
 The root DNS server replies with delegation that I do not know the IP
address of www.tutorialspoint.com but know the IP address of DNS
Server.
 The local DNS server then asks the com DNS Server the same question.
 The com DNS Server replies the same that it does not know the IP address of
www.tutorialspont.com but knows the address of tutorialspoint.com.
 Then the local DNS asks the tutorialspoint.com DNS server the same question.
 Then tutorialspoint.com DNS server replies with IP address of
www.tutorialspoint.com.
 Now, the local DNS sends the IP address of www.tutorialspoint.com to the
computer that sends the request.
Internet Services
Internet Services allows us to access huge amount of information such as
text, graphics, sound and software over the internet. Following diagram
shows the four different categories of Internet Services.

Communication Services
There are various Communication Services available that offer exchange of
information with individuals or groups. The following table gives a brief
introduction to these services:

S.N Service Description

.

1 Electronic Mail
Used to send electronic message over the internet.

2 Telnet
Used to log on to a remote computer that is attached to internet.

3 Newsgroup
Offers a forum for people to discuss topics of common interests.

4 Internet Relay Chat (IRC)

Allows the people from all over the world to communicate in real time.
 5 Mailing Lists
Used to organize group of internet users to share common information through
e-mail.

6 Internet Telephony (VoIP)

Allows the internet users to talk across internet to any PC equipped to receive
the call.

7 Instant Messaging
Offers real time chat between individuals and group of people. Eg. Yahoo
messenger, MSN messenger.

Information Retrieval Services

There exist several Information retrieval services offering easy access to
information present on the internet. The following table gives a brief
introduction to these services:

S.N Service Description

.

1 File Transfer Protocol (FTP): Enable the users to transfer files.

2 Archie
It’s updated database of public FTP sites and their content. It helps to search a
file by its name.

3 Gopher :Used to search, retrieve, and display documents on remote sites.

4 Very Easy Rodent Oriented Netwide Index to Computer Achieved

(VERONICA) :VERONICA is gopher based resource. It allows access to the
information resource stored on gopher’s servers.

Web Services
Web services allow exchange of information between applications on the
web. Using web services, applications can easily interact with each other.
The web services are offered using concept of Utility Computing.

World Wide Web (WWW)

WWW is also known as W3. It offers a way to access documents spread
over the several servers over the internet. These documents may contain
texts, graphics, audio, video, hyperlinks. The hyperlinks allow the users to
navigate between the documents.

Video Conferencing
Video conferencing or Video teleconferencing is a method of communicating
by two-way video and audio transmission with help of telecommunication
technologies.

Modes of Video Conferencing

POINT-TO-POINT
This mode of conferencing connects two locations only.

MULTI-POINT
This mode of conferencing connects more than two locations through Multi-
point Control Unit (MCU).

Internet Service Providers (ISP)

Internet Service Provider (ISP) is a company offering access to internet.
They offer various services:

 Internet Access
 Domain name registration
 Dial-up access
 Leased line access
ISP Types
ISPs can broadly be classified into six categories as shown in the following
diagram:

ACCESS PROVIDERS
They provide access to internet through telephone lines, cable wi-fi or fiber
optics.

MAILBOX PROVIDER
Such providers offer mailbox hosting services.

HOSTING ISPS
Hosting ISPs offers e-mail, and other web hosting services such as virtual
machines, clouds etc.

VIRTUAL ISPS
Such ISPs offer internet access via other ISP services.

FREE ISPS
Free ISPs do not charge for internet services.

Connection Types
There exist several ways to connect to the internet. Following are these
connection types available:

1. Dial-up Connection
2. ISDN
3. DSL
4. Cable TV Internet connections
5. Satellite Internet connections
 6. Wireless Internet Connections

Dial-up Connection
Dial-up connection uses telephone line to connect PC to the internet. It
requires a modem to setup dial-up connection. This modem works as an
interface between PC and the telephone line.

There is also a communication program that instructs the modem to make a

call to specific number provided by an ISP.

Dial-up connection uses either of the following protocols:

1. Serial Line Internet Protocol (SLIP)

2. Point to Point Protocol (PPP)

The following diagram shows the accessing internet using modem:

ISDN
ISDN is acronym of Integrated Services Digital Network. It establishes
the connection using the phone lines which carry digital signals instead of
analog signals.

There are two techniques to deliver ISDN services:

1. Basic Rate Interface (BRI)

2. Primary Rate Interface (PRI)
Key points:
 The BRI ISDN consists of three distinct channels on a single ISDN line: t1o
64kbps B (Bearer) channel and one 16kbps D (Delta or Data) channels.
  The PRI ISDN consists of 23 B channels and one D channels with both have
operating capacity of 64kbps individually making a total transmission rate of
1.54Mbps.
The following diagram shows accessing internet using ISDN connection:

DSL
DSL is acronym of Digital Subscriber Line. It is a form of broadband
connection as it provides connection over ordinary telephone lines.

Following are the several versions of DSL technique available today:

1. Asymmetric DSL (ADSL)

2. Symmetric DSL (SDSL)
3. High bit-rate DSL (HDSL)
4. Rate adaptive DSL (RDSL)
5. Very high bit-rate DSL (VDSL)
6. ISDN DSL (IDSL)
All of the above mentioned technologies differ in their upload and download
speed, bit transfer rate and level of service.
The following diagram shows that how we can connect to internet using DSL
technology:
Cable TV Internet Connection
Cable TV Internet connection is provided through Cable TV lines. It uses
coaxial cable which is capable of transferring data at much higher speed
than common telephone line.

Key Points:

 A cable modem is used to access this service, provided by the cable operator.
 The Cable modem comprises of two connections: one for internet service and
other for Cable TV signals.
 Since Cable TV internet connections share a set amount of bandwidth with a
group of customers, therefore, data transfer rate also depends on number of
customers using the internet at the same time.

The following diagram shows that how internet is accessed using Cable TV
connection:
Satellite Internet Connection
Satellite Internet connection offers high speed connection to the internet.
There are two types of satellite internet connection: one way connection or
two way connection.

In one way connection, we can only download data but if we want to

upload, we need a dialup access through ISP over telephone line.

In two way connection, we can download and upload the data by the
satellite. It does not require any dialup connection.

The following diagram shows how internet is accessed using satellite

internet connection:
Wireless Internet Connection
Wireless Internet Connection makes use of radio frequency bands to
connect to the internet and offers a very high speed. The wireless internet
connection can be obtained by either WiFi or Bluetooth.

Key Points:

 Wi Fi wireless technology is based on IEEE 802.11 standards which allow the

electronic device to connect to the internet.
 Bluetooth wireless technology makes use of short-wavelength radio waves and
helps to create personal area network (PAN).
SAP - Evolution of SAP
SAP is the world leader in enterprise applications in terms of software and
software-related service revenue. Based on market capitalization, it is the
world’s third largest independent software manufacturer supporting all sizes
of industries helping them to operate profitability, grow sustainably and
stay ahead of the competition in the market.

SAP at a Glance
SAP is known worldwide for its unique innovations that help the customers
run their business with high efficiency. Some of its facts and figures stand
as follows −

 More than 263,000 customers in 188 countries.

 More than 68,800 employees in more than 130 countries.
 Annual revenue (IFRS) of €1682 billion.
 Listed under the symbol "SAP" on stock exchanges, including the Frankfurt
Exchange and NYSE.

ISO Certificates

 SAP Development: ISO 9001:2008 certificate

 SAP Active Global Support: ISO 9001:2008 certificate

 SAP Active Global Support: ISO 27001:2005 certificate

SAP Support & Services

SAP offers a wide range of services to its customers with the help of its
15000+ trained and certified consultants with their unparalleled knowledge
across 25 distinct industries.

SAP provides the following supports and services through its portal −

 Download SAP software

 SAP Notes (Support Patches & Upgrades)

 Knowledge-based articles

 Request a Developer

 Edit system
  Managing remote connections

 Reporting and tracking a support incident, etc.

SAP - ERP Introduction

SAP is a market leader in providing ERP (Enterprise Resource and Planning)
solutions and services. In this chapter, we will try to understand more on
ERP and where it should be used. In addition, we will learn the
implementation techniques of ERP along with the ERP packages available in
the market.

What is ERP?
Enterprise Resource Planning (ERP) is a software that is built to
organizations belonging to different industrial sectors, regardless of their
size and strength.

The ERP package is designed to support and integrate almost every

functional area of a business process such as procurement of goods and
services, sale and distribution, finance, accountings, human resource,
manufacturing, production planning, logistics & warehouse management.

Business Process Integration

Every business, regardless of the industry they belong to, require connected
systems with efficient information flow from one business process to
another. Business Process Integration (BPI) plays an important role in
overcoming integrating challenges that allows organizations to connect
systems internally and externally.
Business Process Integration (BPI) allows −

 automation of business processes,

 integration of systems and services,

 secure sharing of data across numerous applications, and

 automation of management, operational, and supporting process.

The following illustration shows an overview of various business processes

running in an enterprise and how they are integrated.

Evolution of ERP
During early phases of development, integrated solutions were designed for
particular process areas such as −

 Material Management − the integrated system was known as Material

Requirement Planning (MRP)

 Manufacturing − the integrated system was known as Manufacturing Resource

Planning
However none of the integrated systems came with a complete solution for
an organization covering major business process areas. In early 1990’s, the
Gartner Group first used the acronym ERP. By mid–1990’s, ERP systems
addressed all the core enterprise functions.

In the early stages, most of the ERP solutions were focused on

automating back office functions that were not directly affecting customers
or general public. Later, front office functions such as customer relationship
management and e–business systems were integrated.

Functions of ERP
An ERP system typically performs the following functions −

 Supports the integrated business process inside the organization.

 Improves capital planning and helps in executing organizational plans and

strategies.

 Helps speed up the decision-making process over the analysis of accurate data.

 Helps extend the business network to wider domains, expanding the products
and services to reach more customers, suppliers, and partners.

 Identifies operational risks to improve governance.

 Provides protection against organizational data breaches and security threats to

leakage of information.

 Makes the organization adaptable to the rapid changes in the business process
according to the needs.

 Gives long-term profit by providing means to increase the customer base.

Functional Areas
ERP is a business management software is usually a suite of integrated
applications that a company can use to collect, store, manage, and interpret
data from many functional areas including −

 Financial Accounting − Deals with financial transactions and data.

 Human Resource − Deals with information related to employee of an

organization.
  Customer Relationship Management − Deals with capturing and managing
customer’s relationship, facilitating the use of customer experience to evaluate
the knowledge database.

 Sales and Distribution − Deals with order placement, delivery, shipment and
invoicing.

 Logistics and Warehouse Management − Deals with storage of products and

shipment.

 Manufacturing and Material Management − Deals with the production and

production planning activities.

 Supply Change Management − Deals with the movement of products,

storing, managing, and controlling supplies.

 Business Intelligence − Analyzes data and converts the same to information.

Advantages of ERP
By integrating the business processes, the ERP offers the following
advantages −

 Saves time and expenses.

 Allows faster decision-making by the management, utilizing the data and

reporting tools designed in the systems.

 Single data source and sharing of data among all the units of an organization.

 Helps in tracking every transaction that takes place in an organization, from

starting till end.

 Supplies real-time information whenever required.

 Provides synchronized information transfer in between different functional areas

such as sales, marketing, finance, manufacturing, human resource, logistics,
etc.

Disadvantages of ERP
It is not always easy to incorporate ERP in an organization. ERP suffers from
the following drawbacks −
  Sometimes business processes critical to an organization are to be re-
engineered to align them with an ERP solution.

 Cost of complex integration can be very high.

 Switching from one ERP solution to another increases the implementation cost
even further.

 End-users are to be trained for their daily operations.

 Customization is not preferred.

SAP - Modules
SAP solutions include a number of functional modules, which support
transactions to execute key business processes, such as −

 Financial Accounting (FI)

 Financial Supply Chain Management (FSCM)

 Controlling (CO)

 Materials Management (MM)

 Sales and Distribution (SD)

 Logistics Execution (LE)

 Production Planning (PP)

 Quality Management (QM)

 Plant Maintenance (PM)

 Project System (PS)

 Human Resources (HR)

Finance and Controlling (FICO)
SAP FICO is a combination of two ERP modules, i.e., Finance Accounting
(FI) and Controlling (CO). Under Finance in SAP and at an enterprise level,
the following modules take part −

 FI − Finance

 CO − Controlling

 IM − Investment Management

 TR − Treasury

 EC − Enterprise Controlling

SAP FI (Financial Accounting) is accountable for tracking the flow of

financial data across the organization in a controlled manner and integrating
all the information for effective strategic decision-making.

Activities Involved in SAP FI

 Creation of Organizational Structure (Defining Company, Company Codes,
business Areas, Functional Areas, Credit Control, Assignment of Company Codes
to Credit Controls)

 Financial Accounting Global Settings (Maintenance of Fiscal Year, Posting

Periods, defining Document types, posting keys, Number ranges for documents)
  General Ledger Accounting (Creation of Chart of Accounts, Account groups,
defining data transfer rules, creation of General Ledger Account)

 Tax Configuration & Creation and Maintenance of House of Banks

 Account Payables (Creation of Vendor Master data and vendor-related finance

attributes like account groups and payment terms)

 Account Receivables (Creation of Customer Master data and customer-related

finance attributes like account groups and payment terms

 Asset Accounting

 Integration with SD and MM

SAP CO (Controlling) module facilitates coordinating, monitoring, and

optimizing all the processes in an organization. It controls the business flow
in an organization. This module helps in analyzing the actual figures with
the planned data and in planning business strategies.

Two kinds of elements are managed in CO −

 Cost elements

 Revenue elements

These elements are stored in the FI module.

Activities Involved in SAP CO

 Cost Element Accounting (Overview of the costs and revenues that occur in an
organization)

 Cost Center Accounting

 Activity-Based-Accounting (Analyzes cross-departmental business processes)

 Internal Orders

 Product Cost Controlling (Calculates the costs that occur during the manufacture
of a product or provision of a service)

 Profitability Analysis (Analyzes the profit or loss of an organization by individual

market segments)
  Profit Center Accounting (Evaluates the profit or loss of individual, independent
areas within an organization)

Sales & Distribution Management (SD)

SAP SD is one of the most important modules in SAP. It has a high level of
integration complexity. SAP SD is used by organizations to support sales
and distribution activities of products and services, starting from enquiry to
order and then ending with delivery.

SAP SD can monitor a plethora of activities that take place in an

organization such as products enquires, quotation (pre-sales activities),
placing order, pricing, scheduling deliveries (sales activity), picking,
packing, goods issue, shipment of products to customers, delivery of
products and billings.

In all these processes, multiple modules are involved such as FI (Finance

Accounting), CO (Controlling), MM (Material Management), PP (Production
Planning), LE (Logistics Execution), etc., which shows the complexity of the
integration involved.
Activities Involved in SAP SD
 Setting up Organization Structure (creation of new company, company codes,
sales organization, distribution channels, divisions, business area, plants, sales
area, maintaining sales offices, storage location)

 Assigning Organizational Units (Assignment of individual components created in

the above activities with each other according to design like company code to
company, sales organization to company code, distribution channel to sales
organization, etc.)

 Defining Pricing Components (Defining condition tables, condition types,

condition sequences)

 Setting up sales document types, billing types, and tax-related components

 Setting up Customer master data records and configuration

Material Management (MM)

Material Management deals with movement of materials via other modules
like logistics, supply chain management, sales and delivery, warehouse
management, production and planning.

Logistic Execution (LE)

Logistic Execution can be divided into two sub-modules, i.e., shipment of
goods (purchase to procurement process) and warehouse management
(storage of goods). These two modules are integrated with sale and
distribution, material management, and production and planning.
Supplier Relationship Management (SRM)
As the name SRM suggests, this module deals with the effective and
efficient transition of products and services between an organization and its
suppliers. The main process covered in this section is procurement of
products like direct materials, indirect materials, and services. This module
can effectively integrate with planning, accounting, and inventory system.
End-to-End Procurement Cycle

Procurement process with SAP Enterprise Buyer comprises of the

following major steps −

 Shopping Carts

 Approval of Shopping Cart

 Sourcing of Requirements

 Purchase Orders

 Purchase Order Approval

 Confirm Goods/Services

 Confirmation Approval

 Process Invoice

 Invoice Approval

Customer Relationship Management (CRM)

CRM deals with end-to-end customer related processes. CRM is designed to
centralize the data related to all the customers associated with an
organization. It helps an organization −

 Maintain its sales, services, and build marketing strategies according the market
demand and customer data analysis.

 Remain focused on its customers and via information analysis, help the business
to know more about its customers.

 Improve sales and services and building better relationships with customers.
Human Resource (HR)
The most important objective of master data administration in Human
Resources is to enter employee-related data for administrative, time-
recording, and payroll purposes.

A new employee can be hired without using Recruitment. Instead you can
hire someone by running a personnel action in Personnel Administration,
thereby creating the necessary data for the employee to be hired.

Employee data must be kept current. After an employee is hired,

circumstances can always arise which necessitate either the entry of new
data or the correction of current data. For instance −

 An employee moves to his or her new address must be stored in the system.

 An employee gets a pay hike at the start of the year. The new salary must be
stored for the relevant date.

 An employee changes jobs within the organization. His or her organizational

assignment, working time, and salary also change.

 Data can be stored for the past, present, or future.

Note − Entering payroll-relevant data in the past triggers retroactive

accounting.
The HR module is comprised of major areas of functionality known as sub-
modules. The HR module is a true demonstration of the strength of the SAP
product in Enterprise Resource Planning.

The HR system has very strong integration points (where data is passed
back and forth without human intervention) with just about all of the other
SAP modules. In addition, there is very tight integration amongst the HR
sub-modules.

The above illustration highlights some of the basic SAP HR terms as listed
below.

 Business trip management

 Recruitment
 Payroll
 Personal development
 Organizational Management
 Time Management
 Workforce Planning
 ESS
 MSS
 Training and event management
 CATS
 Benefits
 Compensation management
 Personal Administration
What is accounting software?

Accounting software is a fundamental application that allows an organization to

record the flow of money for internal and external review and auditing. It is the
primary tool for assessing the financial health of the organization and for meeting
legal compliance through such core financial tools as general ledger, accounts
payable and receivable, purchase order, stock or inventory and billing. Modern
implementation of the application expands to payroll modules, electronic
payment, timesheet and expenses among others in order to gain a wider foothold
in the market.

Why use accounting software?

We discussed what is accounting software, but what are its main benefits? Why use
accounting software at all? The tool with its deep financial information shows you
where to cuts costs and drive productivity. With an appropriate system in hand,
companies automate bookkeeping tasks and draft in-time tax-friendly reports, but
what is most important, they can forecast expenses and develop a smarter investment
strategy with this system.

These are the key benefits of accounting software:

1. Simplification. Accounting systems put finance control in the hands of a non-

accounting audience, designed to give numbers a meaning while performing
automated calculations. With little to no training at all, the business owner can
complete all accounting operations and comply with legal standards from a desktop
computer or a mobile device, and without paying an external party to keep budget in
the loop.
2. Cost savings. Accounting and finances systems automate core calculations and
administrative procedures and take control of your revenue framework so that you
won’t have to outsource finance management to an external expert. In parallel, they
also reduce costs related to printing and distributing documentation and store
sensitive data in secure and monitored locations.
3. Full financial transparency. From an accountant’s or an auditor’s point of view, the
highlight of good accounting systems is that they prevent costly and recurring human
errors. Calculating inaccurate sums or failing to report data in time can easily lead to
a business crisis, and that’s where automating calculations is most useful.
 4. Accurate forecasting. It’s one of the main advantages of accounting software.
Understanding in detail the patterns and trends of your financial performance is
something that would take ages to complete without a solid system. Accounting
software gives numbers a meaning, helping you understand where to cut expenses or
where to invest more. With a clear overview of your current financial status, you will
find it easier to develop smart strategies and allocate resources the right way.
5. Productivity. Should a business owner have to choose a single suite of digitized
services to improve performance, his first option should definitely be accounting
software. These systems drill deep inside the most cumbersome, day-to-day tasks of
companies, collect, organize, and analyze their most sensitive data, and what is most
important, make smarter use of their money.
6. Tax compliance. Many of today’s top accounting systems are dedicated to payroll
assistance and reporting and adhere to tax regulations automatically. Once you’ve
activated them, they become your number one source of tax and audit information;
they store all the important details for you to maintain a transparent workflow.
7. Improved relationships with customers. One could argue that accounting software
has little to do with how customers are served, but that couldn’t be any further from
the truth. Most accounting systems nowadays (regardless of their main functions) work
around effective billing and invoicing, and prevent all sorts of delays and
miscommunication. They are also easy to personalize on the business’s behalf, and
thus make company performance appear more professional and credible.
8. Security. Financial data is the company’s most valuable information and must be
prevented from falling into the wrong hands or getting lost by mistake. That’s exactly
what accounting and finance systems do for their users: prevent accounting from being
jeopardized in any way, and keeping an extra copy in case you need to retrieve them.
In most cases, you will get to build your internal security structure and decide who
will have access to sensitive data.

What are the types of accounting software?

Let’s now proceed to the various types of accounting software. Depending on the type
of operations, accounting & finance systems fall under four different categories. Note
that there are also comprehensive accounting suites designed for enterprises that
combine the best features of each category. Here is a brief overview:

Billing & Invoicing systems

Billing and invoicing systems complete companies’ basic, day-to-day tasks, including
check writing and informing customers about their due payments. They are important
to preserve control over the accuracy of accounting figures and make service look
more professional and credible to the end recipient. On the company’s side, billing
and invoicing tools help document financial activity and prepare it for authorization
and validation.

Examples: FreshBooks, Zoho Books, and Zoho Invoice

Payroll management systems

If you are looking to preserve control over your account payables and account
receivables, you should be looking for payroll management systems that will handle it
all. These tools were developed to perform an array of different tasks,
including calculating employees’ salaries, cutting deductions, depositing the salary
directly into staff members’ bank accounts, producing tax forms and payslips and
more. On the long run, they will secure your financial transactions, cut expenses, and
help prepare detailed reports.

Examples: Xero, Zenefits, AccountEdge

Enterprise resource planning systems

This is one of the most important accounting software categories. It combines all
systems used for product planning, material purchasing, inventory management and
control, distribution, accounting, marketing, finance, and HR. The latest ERP
solutions also offer modules for CRM and business intelligence, so that the company
can learn from its own practices and prepare better strategies in the future.

Examples: Intacct, Brightpearl, Odoo

Time & Expense management systems

These apps are designed to help expedite billing cycles and approve expenses on the
go, and are usually configurable enough for any business to adjust them to its
operation pace. The core rationale behind them is to help collect payments faster and
detect slow and ineffective practices that were not visible before. Their biggest
advantage is being able to produce detailed graphical reports on how time and
resources are being used in each company.
What does accounting software do?

How does accounting software work exactly and what features does it offer? There
are many different ways in which accounting software can optimize your business,
depending on its main features and objectives. From simplified invoicing to complex
tax reporting, accounting systems come with all sorts of extras that are not even
feasible without an appropriate system.

So what does accounting software do? Here are some of the features of accounting
software:

1. Accounting – Accounting is the main component of each system in this category and
the one you should be looking for first when choosing a reliable solution. What we
have in mind by ‘accounting’ is general ledger, fixed assets, accounts payable &
receivable, and bank reconciliation. These are, of course, the basic and most
important ones, while advanced systems have much more bells and whistles to offer to
their users.
2. Billing & Invoicing – There are accounting systems exclusively devoted to billing and
invoicing, but most of them still treat similar operations as an integral module of any
finance operation. Thus, they let customers automate mundane collections, adjust
operations to new and effective payment methods and industry standards, and prepare
accurate and in-time invoices for their clients.
3. Budgeting and Forecasting – This is also a common bundled module in most
accounting systems, which calculates and interprets finance performance for the
current year and helps estimate the budget of the upcoming one. Using it, companies
can prepare their estimates and set up feasible and optimistic sales targets.
4. Management of fixed asset – Both as a separate tool or an inclusive module, fixed
asset management helps manage financial data much more accurately. The module
combines features such as audit history, cost records, depreciation calculation,
resource allocation and many more.
5. Payroll management – With an array of payroll features, you will be able to calculate
and process employee payments, prepare and print their checks without delays, and
respond to all active legal and tax commitments without errors. There will be systems
out there exclusively devoted to payroll management, used by enterprises and high-
tier performers to remind them of their financial obligations.
6. Project accounting – Project accounting software is usually packed in separate
systems that represent the accounting version of vertical industry software. They are
most welcomed by construction operators and software developers, where both costs
and applicable rules differ from one project to the other. The main capability of this
software is estimating and handling overheads and costs related to labor, material,
and equipment, in line with all other features frequently met in accounting systems.
 7. Fund accounting – These features are to be found in accounting software designed for
government agencies and nonprofit organizations and include tracking donation
expenditures, grant management, GASB (governmental accounting standards board)
regulations, and a special suite of financial reports.
8. Inventory management – Inventory management is a specific toolkit developed for
stock control, and where you will find all the necessary tools to give your business a
higher shelf-life product line. This means you will be able to control the availability
and movement of your products and avoid all sorts of delivery issues such as
overstocking or under stocking.

What should you consider when getting an

accounting system?

Of course, the answer to this question depends mostly on the specific needs and
priorities of your business, but there are several key criteria each system has to meet
to be worth the money you’re investing. Here are few thoughts on what you should be
looking for:

1. An integrated invoicing module. Regardless of the core operations, your accounting

system should be complete (inventory management, for instance) and, if possible, you
should always acquire a system that offers at least some basic billing and invoicing
functionality. This way, you will spare yourself the trouble of purchasing additional
software or migrating data to another system.
2. Customization. There is no “one-size-fits-all” accounting system (in fact, this is one of
the most diversely targeted software category), and the reason for that is that each
company runs specific finance calculations and adheres to a different set of rules. If
you’re unable to find a specific system that matches your business model (and that
will hardly ever happen), look for a flexible program you can adjust to your
operations, one that is able to grow with your business.
3. Ease of use. There is nothing simple about accounting procedures and calculations, so
the least your new accounting system should be able to do is to give you an intuitive
environment to work in. This means information should be arranged neatly and
functions should be available on a single dashboard. You should complete operations
within minutes following a navigation pattern you already know.
4. Security. As we already pointed out, accounting systems play around a business’s most
sensitive data, namely the numbers it depends on. In order to ensure that making
calculations and sharing data within the system is bulletproof, choose a reputable
vendor and check security mechanisms in advance.
5. Connectivity. At the point where you’re buying an accounting solution, you will
already have an array of software pieces to put up with it. In order to avoid changing
your entire software infrastructure for the needs of a single program, do things the
 other way around—get a system that integrates with the tools you have, or, in the best
scenario, offers open API for you to connect it with any system you want.
6. Mobile usage. Mobile-ready accounting systems are no longer a luxury only enterprises
can afford, so why not choose one for your needs? Most popular vendors nowadays
offer native Android and iOS apps for their users, where operability is just about the
same as with the desktop version of the system.
7. Pricing. The software logic applies again: the more a system can do, the more it will
cost, so if you can afford a fully-featured and ahead-of-its-time suite, go for it! You
should know, nevertheless, that quality accounting systems can be purchased at a
fraction of that price, and some of them are even available for free.
8. Reliable support. Most accounting software vendors pride themselves with
knowledgeable and fast-to-respond teams, but the truth is you won’t know how
efficient they are before you’ve actually had an issue to submit. To prevent some
bitter disappointment for the money you’ve invested, test support in advance.