Once a company has implemented accurate and compliant accounting systems, it can use the numbers collected and calculated as valuable performance tracking information. A company should regularly measure the results and the performance of the business. A successful company will select and track several key performance indicators (KPIs), a set of metrics which can be translated into actionable results.
Tracking KPIs in a company’s finance and accounting department can help drive continuous improvement and accomplishment throughout all areas of the business: sales, operations, human resources, manufacturing, etc. By regularly tracking KPIs a company can set goals, make changes if goals are not met, and then measure the performance of those changes.
Depending on the type of business, certain KPIs will be applicable to the company and others will not. First the accounting and finance department will select which KPIs it plans to track, depending on the type of company and its goals. Whether a company wants to reduce cost, increase sales, or focus on improving the speed of service, there is a set of KPIs to help track progress. A company should ensure that the KPIs being tracked are both meaningful and applicable. The business should also decide how each KPI will be measured (by cost, by percent, or by number). A company’s particular goals will determine whether its KPIs are actionable, directional, financial, practical, or quantitative.
Suggested Key Performance Indicators
- Cost per Invoice: Measured in terms of cost, this KPI is a good tool for businesses serious about reducing expenses. By taking the sum of all salary and operating costs during a period and dividing it by the total number of invoices processed this KPI tracks the cost of each invoice.
- First Pass Match Rate: This KPI measures the percentage of invoices which seamlessly pass through a company’s payment system without error, delay, or manual intervention. More First Pass Match Rate invoices translate to lower cost per invoice.
- On Time Payment Rate: This KPI tracks the quantity of invoices paid on time, information which speaks to the effectiveness of a company’s purchase to payment operational procedures. The higher the quantity, the more efficient a company will be and the greater market impact it will have.
- Percent of Purchase Order Compliance: This KPI tracks the percentage of total invoices which include a purchase order or contract.
- Percent of Duplicate Payments: A cost management tool, this KPI tracks the percentage of total invoices which are paid twice, requiring manual correction, more time, and more cost.
- Percent of Duplicate Invoices: Similar to the duplicate payments KPI, this KPI tracks the number of double invoices sent out from a company, which can also result in increased invoicing expense.
- Productivity/Invoices per Full-Time Employment (FTE): This KPI measures the efficiency of a company’s payment to purchase process, rather than the cost by dividing the number of processed invoices by the number of full-time employees. Automating processes will reduce the need for manual attention and increase the company’s productivity per FTE numbers.
- Electronic Invoices: If a company utilizes an electronic invoicing system to reduce the cost of manual invoicing, this KPI is integral to measuring the effectiveness of that system. This KPI not only takes into account the total number of invoices processed, but also those which achieve a first pass match.
- Discounts Taken: Suppliers sometimes offer discounts based on receiving early payment. This KPI tracks how many of these discounts a company’s purchase to payment system takes advantage of, how much money is saved, and how much more could be saved through discounting.
- Number of Suppliers per 1000 Invoices: This KPI enables businesses to track the number of suppliers in use. Utilizing superfluous or redundant suppliers can hurt a company’s position when it comes to leveraging better deals in contractual negotiations.
- Days Paid Outstanding: This KPI will reveal important information to a company about whether it is better to pay invoices early, taking advantage of early pay discounts, or to hold onto cash longer, earning interest in an account. Depending on the current interest rates and the size of potential discounts, this KPI will help a company determine which strategy will be the most lucrative.
- Percentage of Invoices in Query: This KPI will assist a business in determining which parts of its purchase to payment process work and which hinder its efficiency. Streamlining these systems will help a company reduce costs, become more efficient and effective in the market.
- Helpdesk Resolution Time: This KPI tracks the amount of time employees are dedicating to resolving customer or client issues. A sensible measure for this KPI is to track the percentage of helpdesk queries resolved within two days.
While most of the KPIs mentioned will rely on a company’s accounting and finance department to track, some require cooperation from other departments as well. To begin tracking KPIs, put a system in place, which appoints employees to track and gather necessary data. Tracking and calculating KPIs on a regular basis can become a daunting task. There are, however, software solutions available to companies looking for a clean, efficient tracking system.
KPI Tracking Software
KPI tracking software can assist companies in the facilitation of a performance evaluation system. Tracking software implements a KPI tracking system by simplifying data entry, calculating KPIs, recording scheduled KPI checks, and creating meaningful charts for analysis.
- SimpleKPI: One option for KPI tracking software, SimpleKPI provides businesses simplified KPI reporting, tracking, and analysis through the use of an online platform. The software features:
- Easy Data Entry
- Merges Data Spreadsheets
- Real-Time Information
- KPI Dashboard: provides an overview of all info tracked and allows tracking of the entire company, departments, teams, or an individual.
- Graphs, Tables, and Widgets
- Standard and Custom Reports
- Automatic Updates and Notifications
SimpleKPI and other similar software options function solely to track a company’s metrics. Some accounting software options can facilitate performance tracking as well. Accounting software, however, is not customizable nor is it nearly as comprehensive as KPI tracking software in the variety of metrics available to track.
- Outright: Previously mentioned, this accounting software allows the tracking of a few specific KPIs:
- Profit and Loss
- Sources of Income
- Sales by State
Whichever KPI tracking process your company uses to measure performance, the most important factor in measuring KPIs is to stay on top of the company’s tracking systems to make certain the values are calculated regularly (weekly, monthly, or quarterly). By establishing the company’s baseline KPI values and setting goals to be reached within a specified time frame a company will be able to successfully measure its overall performance, making changes to operations and policies as needed. The regular review of KPIs will assist in a company’s growth, improvement, and success.
Successfully developing, implementing, and regularly measuring your company’s accounting processes, will lead your business to achieving excellence in both operations and compliance. The establishment of strategic accounting procedures will ensure that your entity – no matter the size or type – can improve performance and increase revenue by setting and achieving its operational goals.