Gaining tactical flexibility in post-Covid-19 markets

WTiN examines the potential applications of accounting software in the textile & apparel supply chain under the new global context. Keith Nuthall, Sarah Gibbons, Ragha Vendra Verma and Liz Newmark report

1. Introduction

Accounting software is crucial for any company that wants to expand on a sustainable basis, adding diversity in supply and customer relationships as they grow. The clothing and textile industry is particularly complex regarding its inputs and outputs. Production is also complex when manufacturers handle spinning, weaving, cutting and finishing. It is critical for a textile company’s prospects of remaining solvent to closely monitor such costs, so that expensive parts of the supply chain and production are identified and, with this information, rationalised. Count that double when exchange rate uncertainty needs to be integrated into accounts, along with international indirect and direct taxation. In short, accounting software is of critical importance to any textile company.

Of course, this software might be shared with third party or in-house accountants, depending on the scale of the company, and the big companies may need to hire major accounting firms, maybe from the big four networks (PwC, EY, KPMG and Deloitte), who have accounting software power to handle multinational complexity.

Indeed, as regulators increasingly insist on international companies accounting for profits made in specific jurisdictions, while they keep tabs on the earnings of their global networks, demand for such specialist accounting services will rise. Similarly, as regulators and standards setters insist on textile companies proving their sustainability credentials, the need for environmental accounting packages that take account of emissions and waste will also expand.

Ultimately, in a digital global market that is meshed by multiple currencies, maybe including crypto, powerful accounting software is a boon for textile companies who have had to watch their bottom line during the Covid-19 pandemic.

2. What is textile accounting software?

Accounting software is often seen as a subset of enterprise resource planning (ERP) software, which usually has financial analysis capabilities. But across the textile sector, specialisation can pay off and it may help a company to invest in accounting software rather than or alongside ERP, depending on their scale and focus. Milwaukee, US-based computing consultant SoftwareConnect stresses in a report that accounting software can provide effective financial management through accounts payables, accounts receivables, general ledger accounts with reporting and payroll. ERP software may offer accounting features, along with supply chain management, inventory management, human resources, and ecommerce features, but may not have the same financial analysis muscle as stand-alone accounting software [1].

Obviously, smaller companies may want only to buy accounting software to handle their books. But larger companies may also prefer specialist accounting software if it helps them log and assess transactions involving different companies within a group or multi-currency sales and purchases. And while ERP will usually deliver some financial data and analysis, “it may not do a sufficient deep-dive into a specific area (such as bank reconciliations) which may leave you desiring a program more dedicated to financials,” said SoftwareConnect.

Another question is whether to adapt general accounting software to the specific needs of a textile business or invest in accounting software specifically designed to offer datasets commonly utilised within the industry. Again, there is no firm rule here. Accounting software designed to record transactions with multiple and integrated suppliers commonly working with a textile company, numerous products or inputs units, and currency risk, may be perfect. But as UK-based accounts software platform provider Accounting Seed says: “An accounting software that fits your industry may seem great, but […] you’re settling for a generic mould of how accounting should be done for your field.” Individual companies operate differently within the same industry, so industry-focused accounting software “can actually become restrictive rather than helpful” [2].

3. Potential applications of accounting software for sourcing

Complex supply chains are the norm within the textile sector, and specialist accounting programmes can and do help manufacturers keep abreast of costs to minimise financial outlays. Surat, Gujurat, India-based TRIPTA Innovations Pvt Ltd is one company offering textile industry-specific software that can help producers [3]. Its Radix software package, for instance, enables users to log purchase invoices configured by financial account, brokers (where intermediaries are used for sourcing), rates per units, discounts, freight charges and more. This includes logging delivery receipt documentation (called ‘challens’ in textile production centres India, Pakistan and Bangladesh).

In addition to book-keeping of costs and income, as well as conducting tax assessments such as deducting tax deducted at source (TDS) and calculating Goods and Services Tax (GST) liability, such systems can manage costs and handle stock maintenance, directing inventory control, says Vikram Rajpurohit, sales manager at TRIPTA Innovations, in conversation with Textile 4.0.

“All the expenses paid for various processes undertaken by separate businesses including measuring, dying, cutting, embroidery and handwork gets recorded serially by Radix and then compiled together to give an overall per unit costing,” he says, “All known processes in the textile manufacturing chain can be added to Radix.”

The system helps companies with complex calculations such as GST requirements for inter-state movements of goods. And the system can generate transaction-related documentation – Radix automatically generates e-Way bills and associated paperwork.

Some accounting systems are also tailored to reflect local units of measurements, important when assessing unit-based costs and pricing. Radix is an example – it has a feature designed to aid the purchase and further processing of the grey fabric, recording inventory in the local Gujarat unit of ‘Taka’, which is around 12 bundles.

4. Potential applications of accounting software for production

Production may not involve external transactions, but accounting software can help companies monitor manufacturing processes – assessing wastage, for instance. TRIPTA Innovations Pvt Ltd’s Radix software allows companies to itemise inventory to account for issues, receipts, stock transfers and lots. If internal movements of products and inputs within a company organisation are not measured properly, then a holistic picture of the entire company supply chain, from input to output may be flawed, with manufacturing problems not being pinpointed by data, preventing solutions being devised, targeted and implemented.

Radix’s accounting software delivers data on inhouse production and inter-departmental movement of stocks. It also enables textile mill owners to assess the value and volume of inputs, such as materials for dyeing and printing. A special version of Radix, for fabric manufacturers, records which materials have been sourced from which firm and under which supervisor, alongside what processing work is done, enabling the company to cost this value-chain dynamically. Rajpurohit says the software also enables managers to record output wastage, usually about 2% of fabric produced, data incorporated in the costing of the product.

The cost of this Windows-based software indicates that smaller textile manufacturers in outsourcing hubs such as India can easily afford tailored accounting programmes – it costs INR13,500 (US$185) plus taxes, also has specific versions for general accounting, textile traders, retail stores agencies, dyeing and printing mills, yarn manufacturing and embroidery.

According to Rajpurohit, the company keeps updating the software with the latest changes in tax rates and regulations: “We are continuously interacting with our clients and understand their requirements to improve our software,” he says.

5. Potential applications of accounting software for distribution

Distribution might also seem like a real-time dynamic process better suited to ERP assessments than accounting software, but the shipping cost increases that have been encountered during the Covid-19 pandemic shows that watching logistics costs is crucial for maintaining margins [4]. ApparelMagic, based in Florida, US, offers order fulfilment software that enables clothing companies to assess warehouse stocking, allocation of stock (including financials), box level scanning records, and actual delivery of stock to retailers, again with associated financials [5]. California, US-based fashion retailer Badgley Mischka, which uses ApparelMagic, [6] comments: “Having the data organised and shared by all departments really makes a big difference.”

Chennai, Tamil Nadu, India-based Maxx Business Solutions is another textile software specialist, whose MaxxERP system offers a secured cloud-based online logistics bookkeeping application for small businesses. Its Zone/Route tracking system itemises goods loaded in bulk, optimising deliveries to avoid repeat journeys, saving costs and time [7]. A company note said the system aids “the rapid liquidation of non-moving stocks, calculation of accurate landing costs to fix appropriate margins, determine fast moving products […] integrated with accounts and taxation”.

TrueBays, a Dubai, United Arab Emirates-based accounting software provider, also offers specialist distribution-focused applications. A memorandum said its textile ERP inventory management module helps companies measure stored stock value, with units identified by size, colour or material, aiding tracking – important in large logistics centres such as Dubai’s free ports [8].

6. Potential applications of accounting software for sales

Accounting software packages can be especially useful for enterprises managing numerous clients simultaneously, assembling multiple sales orders within different price ranges and generating bills and receipts for a wide array of products, a spokesman for software developers Anvesha Infotech, of Varanasi, India [9], tells Textile 4.0. With manufacturers delivering similar products at different agreed rates to different customers, the accountancy module of its ERP system can help SMEs and larger organisations monitor complex elements of payment deals, credit and debit arrangements, he says.

These systems have the flexibility to log multi-rate price lists with discount schemes, so that managers can assess and control outstanding credit limits, bill adjustments modifications and maintenance of sale and purchase ledgers. Such functionalities are “quintessential characteristics” for textile sector accounting systems, he says. Sophisticated documentation software such as that offered by Anvesha Infotech can structure such data to accord with taxation systems that a company pays into – particularly important for multi-jurisdiction groups.

Anvesha Infotech’ accounting module can be integrated within a company’s overall ERP application, including inventory management, warehouse management, purchasing, order processing, manufacturing and planning, CRM, business intelligence, and ecommerce, meaning there is no need for duplicate data entry in multiple software packages, thus saving time and resources.

Accountancy software is about efficiency and effectiveness, enabling organisations to be more efficient, taking less time to manage accounts than a manual process, explained Gabriel Currie, London-based cyber threat advisory senior manager with accounting network PwC.

“If accounts are done by a computer, they are probably more accurate, so it saves money and does the job better,” he tells Textile 4.0. At whichever level of the supply chain a company operates, he says “if you want to grow as an organisation, it’s by digitising tasks”.

“The textile industry is not a high margin business, so they want as many cost savings as possible.”

7. Market perspective and broader benefits

Accounting software is generally meant to ensure better accounting of purchases, sales, debtors, creditors, cash balances, bank balances along with fairer and more transparent reporting, says Amarjit Chopra, former president of the Institute of Chartered Accountants of India [10]. However, the data that it processes can also be used for analysis of demand and sales in various markets, he tells Textile 4.0. Such predictive power is especially useful for programmes that are tailor-made for the clothing and textile sector and Chopra anticipates their analytical strength will grow exponentially as artificial intelligence (AI) tech is worked in, as expected in the future. Major multinationals are already “basing their management decisions on reports generated by such accounting software”, he says.

Chopra adds that accounting software can also help in marketing products in markets identified by such preparatory work: “If there is a sudden pickup of demand in certain countries or if there is a cyclical variation in the sales in a particular market then it will show in an analysis,” he says. “This can be used to find as to in which particular months or in which particular areas the demand for a particular product is good or bad.”

The former institute president says that major corporation audit committees can ensure accounting software better synchronises with the requirements of various departments and businesses within a group or company, delivering relevant information guiding management decisions. And therefore, good accounting software should be modifiable by a company, so that it can improve its analytical potential through experience and statistical findings developed by the system itself, which become reflected in company policy.

Business accounting provider Vyapar, from Bengaluru, India, describes accounting software as “the primary tool for assessing the financial health of an organisation and meeting legal compliance” [11], which gives ‘a glimpse’ of performance influencing future budgets.

Automation of processes reduces the cost of employees who were previously engaged in manual processing of data and reduces the likelihood of errors in data entry and accounting calculations, they claim [11]. Errors when calculating depreciation can result in inaccurate financial reports that risk failing to comply with regulatory requirements, they added, noting that tracking product inventory and providing up-to-date details on the amount of stock in hand are key throughout the garment industry supply chain to maximise efficiencies.

8. What specialist accounting software and services are available?

There are many vendors offering specialist accounting and book-keeping software that is tailored to the needs of the textile and clothing sector.

The UK’s Cuskit Ltd offers a specialist suite of apparel industry software that includes its TeqControl Apparel Edition, which integrates a financial accounting module including multi-currency accounting options of critical importance to increasingly diverse supply chains and customer portfolio [12]. These are likely to become more complex as Covid-19 encourages western companies to combine near-sourcing with lower cost Asian sourcing.

Along with integrated sales and purchase ledgers and credit control, Cuskit’s module includes capacity to guide companies working with complex European Union (EU) VAT rules, which since Brexit’s full application from 1 January 2021 have become increasingly difficult, especially for companies trading from Great Britain [13]. Under the EU/UK trade agreement, a Northern Ireland protocol leaves this province within EU single market rules, including VAT legislation for its companies [14].

In the US, Florida’s ApparelMagic’s software offers accounting software that can be used by supply chain partners, who can access a file or ‘ticket’ relating to a particular product and check any cost query connected to it [15]. This, says the company, promotes transparency to collaborators from materials suppliers to retailers, both in-store and online. Users can readily identify best performing product lines through centralised financial data, helping maximise supply chain efficiencies.

SaiSun Solutions, based in India, provide an accounting software package that creates a report every time any new activity takes place, alerting all managers accessing this data to updates in the manufacturing process [16].

“It enhances complete coordination among various facets of the process and eradicates all the chances of miscommunication that slow down the process,” said a company note.

Some companies sell special textile sector versions of their general accounting software – for instance, India-based AK Softwares sells ‘Miracle-Textile’, which is software customised for textile brokers, traders and textile mill agents: “Miracle Textile helps a business manage key functions such as product planning, parts purchasing, maintaining inventories and separate process facility for cutting, milling, embroidery and handwork,” said a company note [17]. One key issue for Indian traders is that the software takes account of the goods and services tax (GST), which came into effect in 2017 and has proven complex because of its varying product-based rates [18].

Meanwhile, Pakistan-based Cleantouch is another outsource centre company that has developed accounting software with the country’s textile sector in mind. Its multi-level yarn trading package is designed to create books for yarn brokers, traders and mills, offering purchase and sales data with financial and product data files, along with reports on inventory accounts and business standard attainment [19].

9. How can financial software help companies improve operations?

Fashion and finance work hand in hand [8] and access to real time budget data can be critical in managing customer demand across the supply chain. Appropriate accounting software packages facilitate real time data that helps the garment industry plan more efficiently for future strategies or develop a recovery plan for any losses [20]. Garment manufacturers face constantly changing demands and frequently need short-term, fast turnaround deliveries. This dynamic business model adds complexity and more costs, meaning manual cost and income book-keeping systems are largely obsolete [21].

Garment and textile industry accounting software provides hassle-free handling of payments and receipts, efficiently managing multiple customers at the same time, analyses multiple orders within different price ranges, and generates bills and receipts for a broad array of products at any stage of the supply chain [21].

And as the global economy slowly finds its feet following the Covid-19 pandemic, “it’s clear supply chain operations have changed for good,” says Rob Sinfield, VP Product, Sage X3 and ISV Success at accounting software major Sage, in conversation with Textile 4.0.

He says in future, companies will want to have contingency plans and financial administration capacity to cope with a new status quo that will be “defined by the unexpected”, where businesses accept they “won’t be able to predict everything that will happen”. Adequate accounting software will enable textile and clothing companies to introduce “agile processes and technologies into their supply chain to ensure they have ample time to prepare” for unexpected turns of events.

Covid-19 has also “highlighted the connection between supply chains and business success,” he says. To illustrate, accounting network Deloitte has conducted research [22] showing that 200 of the Fortune Global 500 companies have an element of their supply chain in Wuhan, the hub of the first outbreak of Covid-19. When a lockdown was declared in that one city, it disrupted the supply chains of 40% of the world’s biggest businesses, Sinfield says, adding: “To stop this happening again, organisations need to know where their vulnerabilities lie and have visibility over them at all times.”

Indeed, they need the ability to forecast conditions accurately and deal with unexpected changes in demand, before customers and the bottom line feel the impact, he noted.

With the Covid-19 driving increased online traffic and a digitised economy, accountancy software packages are an appropriate way to step up to the challenges and match the sales business practices, say accounting software vendors [23].

“The dominance of ecommerce and the growing need to move products around a complex network of warehouses, only strengthens the need for a more transparent and intensively monitored supply chain model,” says Sinfield.

India’s SaiSun Solutions has developed what it claims to be the world’s first bills/invoices money collection mobile app, which allows business owners to manage account receivable records anytime, anywhere [23], speeding up payments to customers and employees.

Outstanding monies can be collected through the app, synchronising data to a company’s ERP or accounting software, which can be utilised on or offline and synchronised via a cloud server.

The app enables a clear up to date picture of financial transactions and relevant parties in the supply chain can be informed of transactions instantly via email or WhatsApp [23].

Of course, textile and clothing company managers are unlikely to be accountants and may not have a solid financial grounding. For this reason, user-friendliness can be important when developing accounting systems for the industry.

FreshBooks, based in Toronto, Canada, for instance, provides accounting software it describes as being “designed for a business owner, not someone with an accounting background”, although access can be shared with an accountant for auditing purposes [24]. Company sales business development representative Aisling Baroey tells Textile 4.0 that such a package “makes tax season easier” and as all transactions are auto-imported, a business owner can see overspend and underspend in real time.

“People don’t want to spend time on administrative tasks, so why not have software that does it for you,” she says, indicating that the programme operates through blockchain principles, with data on all activity relating to projects categorised and logged, including invoices, hours, overdue payments, and more.

Of course, the ability to fight fraud is also a key benefit of effective accounting software, especially important for the textile and clothing industry given its complex supply and delivery chains, and large number of product lines. American accounting software company Tipalti, based in California, US, boasts that its instant reconciliation system means any fraudulent activity can be detected quickly and prompt corrective action taken [25]. Ongoing screening against watchlists before each payment means every payment is checked for legitimacy and legality. And audit trail logs capture user activity in the system, ensuring a record for auditability purposes.

10. Widespread use

While different functionality between ERP and accounting systems are more or less attractive to different businesses [1,2], to achieve the restructured supply chain considered beneficial to the industry, integration of data will be key – whether that is financial or wider operational intelligence.

Sage’s Sinfield says it is crucial that textile and clothing industry financial data is turned into “actionable insight” across the supply chain, noting that a sudden drop in demand for certain products “could speak to a wider trend”.

He tells Textile 4.0 that “siloed data infrastructure can easily get in the way of a joined-up response to disruption” indicating that data integration and insight are crucial, suggesting enterprise systems could prevail.

Lutz Walter, secretary general of the European Technology Platform for the Future of Textiles and Clothing (ETP), says that while he could not comment on actual percentages, only the very biggest companies in the European textile and clothing industry had “fully blown ERP systems” incorporating accounting functions, such as SAP (standard assessment procedure – software solutions built for the proper functioning of the ERP).

“Many medium-sized businesses have some kind of custom-made solutions, developed and maintained by specialised external or in-house consultants and accounting software used by the financial departments,” he tells Textile 4.0. “The very small ones probably have no real ERP systems at all and likely manage finances with simple accounting software either in-house or managed by external accountants/tax advisors.”

Lisa Lang, associate director for innovation and skills at the European Apparel & Textile Confederation (Euratex) stresses that it was essential to incorporate accounting software into industry management and processes. “The use of more software to streamline supply and production chains in the textile and clothing sector is by now considered mission critical,” she tells Textile 4.0. “The introduction of digital tools promises not only a faster and more sustainable business workflow but also an increase in competitiveness and innovation power.”

11. Cyber vulnerability

There are some specific factors about accountancy software that might present a heightened cyber-crime risk (that other software might not have), PwC’s cyber defence senior manager, Gabriel Currie, tells Textile 4.0. For example, he says, hackers could use access to calculate an organisation’s balance sheet or financial statements, with obvious commercial confidentiality risks [26]. Malicious actors might also exploit access to alter or misstate an organisation’s financial results in public, causing financial or reputational damage to the organisation.

Accountancy software might contain sensitive information around a company’s supply chain, their commercial deals with other companies, their customers, and these partners’ financial position. Such data could be stolen for commercial espionage purposes, for example, to give a competitor an advantage. Data held by the software could also be corrupted or deleted.

Such software is likely to be specifically used by finance teams, narrowing the target of computers to hack or employees to dupe to gain access. Indeed, the accountancy software itself might be used as a vector to persuade an operator to give a hacker more access. Additional data could then be stolen for espionage, for example, to give a competitor an advantage.

Accountancy software might also have trusted access to other critical systems, for example, ERP, invoicing lists and customer databases, which could be stolen or amended and deleted in disruptive cyber-attacks, says Currie.

Attackers “can change things under the hood without the user realising anything is different or wrong,” he warns.

By putting malicious code on software in one company, cyber criminals can infect “hundreds of companies in the chain,” he adds, characterising this as “global reach through interconnectivity”.

He adds: “Supply chain attacks are a great idea if you’re an attacker – they want to do as much damage or have as much effect as possible with minimal effort. You can target one organisation and by virtue of that, you can impact thousands of organisations – it’s a ripple effect.”

Hacking the update source code, he says, is the most likely way attackers might make their way into software systems. Alternatively, accountancy software might be connected to the internet in which case any software vulnerabilities can be exploited or attackers can simply guess a username and password in a “brute force” attack.

12. Risks of cyber-attacks to the textile & apparel industry

A broad range of financial, intellectual and reputational harm can be caused to textile and clothing companies if their accounting systems are compromised in a cyber-attack. If attackers gain access to the software and edit its functionality or remove or edit data without the user realising anything is amiss, particularly at a time when financial statements are being pulled together, shareholder confidence could be damaged, Currie indicates.

Data may include sensitive and confidential information about the supply chain, who the company is buying from and selling to, contractual information, financial plans of the company. Moreover, this data could be stolen by a commercial partner with malicious intentions [27]. Or attackers could sell that intelligence on to others giving them a competitive advantage.

An attack on the accountancy software can be used as a lever to access other elements of the company’s network. “It’s like the keys to the to the kingdom,” says Currie. Hacking the accountancy software can give access to the finance team and others with, or granting access to, privileges to sensitive data on the network.

“Accountancy software is critical in an organisation,” Currie explains. “If I could break in and stop it working properly, or delete data, or corrupt it, it would be really damaging.”

And hackers are inventive in the methods they use to try and access such systems – from technical IT-based hacking through networks, to phishing emails and even physical break-ins or infiltration.

Attackers can also encrypt data and hold the company to ransom for it. “If you were preparing financial statements at the end of the year and someone encrypted the data and said I couldn’t access it without paying GB£50k, I’d be much more likely to give the money to get my data back,” Currie explains.

13. Protection against attacks

When updating old technology, differences in systems can lead to opportunities for intrusion, as can technology incompatibility with legacy systems still in place, says the Anvesha Infotech spokesman [29]. This most certainly applies to when companies introduce new accounting software, especially if it is integrated into existing ERP and other operating systems. As a result, companies should conduct a risk analysis of such upgrades, to identify any areas of vulnerability to external and internal attacks.

PwC’s Currie adds: “Everything you do will impact the cyber risk to a company in some way and change the vulnerabilities. Any new software changes that risk”.

He explains that textile and garment companies should seek third party assurances that they are securely protecting their accounting software system data with encryption. Companies should also ensure credentials for logging in are strong and have a multi-factor ID, not just a password, and insist staff have appropriate levels of access privilege – giving permissions to the right people for the data they need to conduct their roles.

Companies need to think about monitoring – any unsuccessful logins, unusual geographic logins of users – to check they did not log in from Chicago at one time and Moscow 10 minutes later, he suggests, as this could indicate criminal activity.

“For every piece of software, think about how and where someone might want to attack it and what controls you need to put in place to stop attacks from happening or detect them if they do happen,” Currie explains.

Another potential protection, especially for smaller firms, is to use accounting systems that operate on a cloud and which are protected by a major IT company’s firewalls and encryption [30].

However, if an attack does happen, an effective recovery strategy should also be present in the textile manufacturing facility, “which has been tried and tested by a multifunctional team who understand the structured countermeasures needed”, explains Anvesha Infotech’s spokesman. Developing awareness of cyber security across a business is also recommended for personnel at all levels.

With developments in technology such as blockchain and full immune systems, “which may be the future of cyber security in the fourth industrial revolution”, more publicity has focused on this area of industrial development. Textile manufacturers should utilise this to gain advantage in developing their processes, control systems and security, he suggests.

14. Conclusion

In an industry where ERP software has played a strong role, the need for effective accounting software that is tailored to the textile and clothing industry has not always been obvious.

But with Covid-19 reminding companies – sometimes brutally – that they cannot plan for certainties in markets and supplies, while pushing manufacturers to build flexibility and hence complexity into their customer and supply relationships, accounts and books will become more sophisticated. So, companies will also need the analytical muscle delivered by specialist accounting software to crunch sales, costs, production and distribution-related financial data, to deliver managers options responding to swift changes in circumstances.

In short, being nimble means having a firm grasp of financial data, and in a sector with extensive networks of commercial collaborators, software applications can cut through the noise and propose options that will work. In the post-Covid-19 world, successful companies will have a deep understanding of their financial positions, because that will inform them about the risks of alternative reactions to unexpected events.