There are several KPIs for the finance departments that are currently being measured by businesses. However, it is important to remember that when choosing to measure certain KPIs, it is good to identify the purpose for tracking it beforehand.
Financial key performance indicators (KPIs) must be used as a tool so that finance departments can ask the right questions in their analysis so that every move they make is calculated to drive the company towards the right goal and direction.
While there are advantages of tracking various key performance indicators for finance departments, there needs to be clarity on which of these can be influenced by the finance departments. For example, while gross profit margin KPI or revenue growth KPI are good KPIs to track, these figures are influenced mostly by operations teams and sales teams and not so much the finance departments. These aren´t exactly the KPIs that will help motivate the finance departments to improve performance.
Hence, here are 5 KPIs that the finance departments can actually influence so that they may contribute better to the business´ overall growth.
- Debtor Days KPI
This is a good KPI to have a good grip of the company cash flow. With business growth comes an added layer of complexity on the customer base that may make collecting harder. It is widespread practice that some companies are offered special terms. A high number of debtor days can be an indicator of impending cash flow problems for the business.
- Days Receivables Beyond Terms KPI
Measuring this KPI ensures that risks of bad debts are mitigated. In addition, when this is measured, there is greater focus on reduction of dollar value to those taking on receivables role. The measurement of days receivable beyond terms is also an effective way to make your finance department stay motivated as they can clearly see the effect of their contribution.
- Total Number of Outstanding Invoices on Dispute KPI
This KPI is a good KPI especially for those companies that have AR/AP teams. Disputes of invoices are inevitable, and they can be due to prices, incomplete deliveries, unsatisfactory delivery of services, etc. This specific KPI also has a direct impact to the business´ customer satisfaction rates and has an effect on the choice of suppliers or in becoming a preferred supplier for clients.
This KPI will allow your team to identify early on the issues so that they may be immediately remedied. The longer it takes to resolve these issues, the higher the likelihood of the reasons for disputes being forgotten and the problem remaining to be unresolved for a long time.
One thing that is important to note is that this metric must be measured in a way that the AR/AP or finance department has control otherwise, including invoices disputed for cash issues defeats its purpose.
- Actual Expenses vs Budget KPI
This KPI ensures that there are enough initiatives being done to ensure accurate, realistic, and collaborative budgets throughout the year. Measuring this KPI makes sure that the finance department stays on top of things, they collaborate effectively with other departments, and everyone is aligned. More people working on the same goal, so to speak.
- Days to Close Month-End KPI
Measuring the amount of time it takes for the finance departments to close the month end processes so they can provide the necessary financial reports to the management team has a substantial effect to the business and how it performs.
When the days it takes to close month end is short, decision makers can make timely and well-informed calls. This KPI also allows finance departments to continue to streamline their process and identify bottlenecks along the way.
This metric allows the finance departments to be constantly engaged and committed to delivering value.
Effectively Measuring and Tracking Key Performance Indicators for Finance Department
Performance Canvas Financials is a complete, cloud-based Financial Planning and Analysis solution that offers streamlining and automation of the entire budget process so that accounting tasks may be done more effectively and accurately.
In addition, Performance Canvas Financials offer robust dashboarding, scorecarding, and KPI tracking capabilities. You can now monitor both financial and non-financial KPIs in an easier way.
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