Financial management has historically been bound by the traditional walls of accounting software. That made it a tough sell for vendors as no one gets too excited about accounting packages.

But this perception is rapidly changing. Tougher rules on financial compliance and the expanding role given to the finance function have reignited interest in this part of the business software market.

According to a recent study by AMR Research, 21 per cent of businesses that are planning to upgrade their ERP systems in the next 12 months are doing so to improve its financial management capabilities. That makes it their second-most popular area for investment after business intelligence and some way ahead of e-commerce, which scored just 17 per cent.

The finding might surprise anyone who associates financial management with humdrum accounting functions like general ledger, accounts payable and accounts receivable.

But today’s CFOs are being asked to play a much more strategic role and to do this they need financial management systems that can not only keep the books, but also measure performance and provide insight.

Needless to say, the core accounting functions are largely taken for granted these days and vendors know it.

”The core financials are not weighted as highly as they used to be in customer evaluations,” says Paul Massey, managing director of IFS, a Swedish ERP vendor.

Nevertheless, there is a great deal of interest today in how well core financials integrate with other business processes.

”Quite often the financials are treated as a commodity. But one of the key differentiators is the amount of integration they have with the rest of your ERP backbone,” says John Gledhill, vice-president for industry solutions at Lawson Software, a mid-range ERP vendor.

All ERP vendors stress this integration capability and the advantages it brings to functions such as procurement in terms of time saving and accuracy.

”With an ERP system, an order only has to be entered once and you know that the data typed into the order entry system will appear in the ledger,” says Mr Massey.

Industry consolidation has reduced the number of suppliers of ERP systems, but because of the critical role that financial software plays for modern businesses, vendors are reluctant to pull the plug on the acquired product lines.

Following its 2005 acquisition of PeopleSoft, Oracle now supports four financial management systems. More recently, it also acquired Hyperion, a specialist supplier of high-end financial management software.

Lawson Software recently acquired Sweden’s Intentia, and their two ERP products have been rebranded S3 and M3 respectively. Mr Gledhill says the products cater for different types of business and their respective financial modules will continue to develop independently. ”S3 is aimed at corporate financial systems while M2 is better at divisional and operational financials,” he says.

Infor, another leading mid-market ERP vendor, has grown rapidly through acquisition and now owns eight major ERP systems. For financial management, the company has simplified the choice for new customers to two main platforms, FMS Enterprise Edition and SunSystems, which it got from its recent acquisition System Union.

FMS Enterprise Edition is aimed at big, centralised organisations that need to integrate and streamline local and multinational financial management processes from end to end.

SunSystems, by contrast, is aimed at decentralised organisations and it has recently been upgraded by Infor to shake off the ”legacy look” that characterises a lot of older accounting programs. As well as a new interface that resembles Microsoft’s Outlook programme, SunSystems has an upgraded audit trail designed to satisfy the tougher corporate governance requirements imposed by legislation such as the Sarbanes-Oxley Act.

Doug Norton-Bilsby, vice-president for financial applications at Infor, stresses the improved integration capabilities of SunSystems following its acquistion. SunSystems can now link to other applications and modules, including Infor products in areas such as procurement, purchase requistions and corporate performance management. ”We are converging the functional fortresses and helping businesses achieve operational effectiveness through streamlined business processes,” he says.

Traditinally, the only way to achieve this high level of process integration across the functional areas of a business was by buying a high-end ERP suite. But the functional gap that once separated ERP systems from mid-range accounting programs has closed considerably.

Once, only ERP systems offered functions like supply chain management but the advent of service oriented architectures make it much easier for companies to link their accounting software to the accounting systems of their suppliers in order to automate reordering, for example.

Similarly, many mid-range accounting packages now offer optional modules for payroll, human resources and customer relationship management, so reducing the functional gap with ERP systems.

Performance is also much less of an issue than it used to be as many mid-range accounting packages now run atop high-end databases such as Oracle or Microsoft SQL Server – just like their pricier ERP big brothers.

Microsoft has built a strong presence in the mid-range accounting market since it 2001 acquisition of Great Plains. The software, which was recently rebranded Dynamics GP, is pitched principally at mid-market enterprises, although there is also a ”light” version for smaller companies, called Microsoft Small Business Financials, which sells for less than $1,000.

Intuit has traditionally focused on small businesses but it also offers a mid-market product, called QuickBooks Enterprise Solutions, which it promotes as a low-cost alternative to mid-range ERP systems.

Analysts see the mid-market as the new battleground for financial management software as it an area that is poorly addressed.

”Mid-sized companies are often stuck between solutions that are inadequate for their needs, and those that are overly expensive and too complex,” said Laurie McCabe, vice president of analyst firm, SMB Insights.

Software as a service (SaaS) offerings have emerged as an interesting option for small and mid-sized companies that do now want the hassles of owning financial software. Instead, the software is hosted remotely and accessed over the internet on a pay-as-you-go basis.

NetSuite of the US claims it has one of the most comprehensive SaaS offerings that covers not just core financials but also traditional ERP areas like order fulfilment, purchasing, inventory, payroll and employee self-service functions. It also offers optional modules for CRM and e-commerce.

To compete with the SaaS upstarts, leading mid-range accounting software vendors like Intuit, Microsoft and Sage of the UK have all unveiled SaaS offerings.

While the number of financial packages on the market – and vendors – has reduced considerably during the past decade, new demands continue to emerge and the advent of one-size-fits-all financial management program seems a long way off.