Transaction Processing Explained

What Is Transaction Processing?

Transaction processing uses transactional processing systems (TPS) to process data and manage the exchange of information between two parties.

A transaction is defined as an exchange of goods, services or money between multiple parties. In finance, Gartner considers businesses to use four types of financial transactions. These are:

1. Sales
2. Purchases
3. Receipts
4. Paymemnts

Transaction processing simply enables the processing, tracking and recording of data associated with those transactions. These systems help organizations create, store, modify and retrieve data related to sales, purchases, payroll, inventory management and other business activities—all of which are vital components of business success.

Why Is Transaction Processing Important?

Keeping accurate transactional records is imperative—reporting is one of the fundamental functions of finance teams. Transactional data is used for financial reporting purposes, helps create the three most important financial statements for your business and helps in balancing GAAP and IFRS with other reporting needs. Monitoring transactions regularly can also help businesses stay competitive by looking for efficiencies and reducing operational costs.

How Can Finance Teams Improve Transaction Processing?

To improve transactional processing, finance teams should first assess their current systems and identify areas where automation can be implemented.

Automating routine processes, such as invoicing, payments and cash flow management, can help increase efficiency and accuracy while reducing the risk of human error.

Additionally, investing in FP&A software can streamline the process by allowing for a single source of truth across all financial processes. This in turn ensures consistent data integrity throughout the organization and eliminates the need to manually enter information into multiple systems. Finally, investing in training staff on automated processes and best practices will ensure that they are able to use the tools effectively and efficiently.

With these improvements in place, finance teams can improve transaction processing and create a more efficient and accurate system overall.

What Are the Advantages of Automated Transactional Processing?

There are multiple advantages of automating your transaction processing methods.

Automation can:

• Increase accuracy and reliability as data is entered into systems consistently, eliminating the risk of human error.
• Lead to improved efficiency, reducing the time spent on manual tasks such as data entry and retrieval.
• Reduce costs associated with manual processes by cutting down on labor expenses related to manual input and processing of large volumes of data.
• Increase your visibility into financial transactions enabling finance teams to make better decisions in terms of budgeting and cash flow management, ultimately leading to a more profitable business.

Drawbacks of Automated Transactional Processing

• The potential for data security breaches or other malicious attacks, as automated processes can be vulnerable to external threats.
• Automation requires significant upfront investments in terms of costs and resources which may not be feasible for small businesses or startups.
• A lack of visibility into underlying business trends as manual input and analysis is no longer necessary. As such, finance teams should carefully consider these potential drawbacks before investing in automated transaction processing.

With careful consideration and proper implementation however, automated transaction processing can bring about numerous benefits l allowing finance teams to better manage their finances and make more informed decisions.

What Is the Importance of Accurate Sales Processing?

Accurate sales processing is important in any business, as it ensures that all transactions are completed correctly and on time. It can also help to ensure that the right amount of money is owed and collected, as well as provide customers with an accurate representation of how much they have spent in a given period.

Accurate sales processing also helps to reduce risk by ensuring that all payments are accounted for, preventing incorrect or fraudulent payments from taking place. Additionally, it can protect a business from financial losses by ensuring that all orders are accurately processed and all payments are received in a timely manner.

If you want to learn more about consolidating your data and streamlining your financial reporting, check out Vena’s Excel-based FP&A platform today.