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11 essential KPI for your Accounting Department

, by Fluxym

Now more than ever, implementing and tracking KPIs are crucial functions. KPIs allow your organization to take stock of its current processes and procedures, and control how they change over time. They enable your accounting teams to set limits and actionable objectives, as well as quickly respond when anomalies are detected.  

I. Implementing and tracking KPIs solves a number of serious issues  

The configuration and tracking of performance indicators represent a major advance for your accounting department and, more generally, for your organization as a whole.  

In addition to helping control and track process efficiency, they solve common problems some of our customers face: 

Even though these departments tend to work independently in many companies, it’s vital that they can work hand-in-hand on cost optimization and supplier risk management. Therefore, their collaboration must be based on communication and full transparency. It is essential that they both have clear visibility of the actions and outcomes of the other department by providing open and unrestricted access to KPIs.   

Before rolling out a P2P solution, you might have had to or will need to provide your company’s Board of Directors convincing proof of its advantages. Then, once the solution is installed, they’ll certainly want to see evidence of those advantages. Putting KPIs in place is an excellent way of showing the short-, medium- and long-term benefits of this type of solution.     

Some of your teams might push back against using a new automation tool. This is another way KPIs provide real leverage in showing the advantages and interest of process digitalization and automation to convince them and help overcome their reticence.  

You can use the visibility KPIs provide to quickly detect any conflict areas or obstacles in your processes. This enables you to jump into action and make any changes to the tool itself in terms of adjusting workflows or to your teams, for example by providing training courses.  

This is a key issue for multi-entity groups. In order to achieve overall performance objectives, you must be able to compare and pool the KPIs of various organizations so the high performers can positively influence the low performers. It’s also a good way for each branch to compare its levels of productivity and efficiency to the rest of the group.  

Establish benchmarks and comparaisons between subsidiaries of a company is crucial

As you may have gathered, KPIs are crucial metrics for your accounting department. Now let’s look at the 11 performance indicators that must always be tracked.  

II. The 11 KPIs to track for your accounting teams

The advantages of e-invoicing are indisputable:

  • Lower processing costs
  • Shorter payment deadlines
  • Secure payment chain
  • Tax fraud protection
  • Less CO2 emissions

So, switching to electronic invoicing is a vital step for your organization. Being able to calculate and track the percentage of your company’s outgoing and incoming e-invoices is also crucial for your accounting team.

Every invoice must be matched to an order to ensure you are complying with the reliable audit trail regulation and providing traceability for the entire payment chain.   

Conversely, orderless invoices due to unauthorized purchasing are a sign that your company has no automated system, and shows that you’re not following procedures and processes. 

There are clear advantages to invoices backed by orders: higher automated reconciliation rate, less processing time, and a huge cost savings.  

Note: Although automated reconciliation is facilitated for invoices with orders, this is not generally the case. Take the example of an incurred expense and a paper invoice sent to your accounts payable department, a person would have to manually link them.  

Similarly, if the reconciliation threshold is set at, for example, €100 and that limit is exceeded, someone in accounts payable has to manually match the invoice with the incurred expense.  

This is called processing exceptions.  

This is an extremely important indicator because processing exceptions is a serious headache for your accounting teams. According to an Ardent Partners study, 22.5% of invoices are processed manually. They add significant workloads for your employees and considerable costs for your organization.  

You can overcome this major hurdle by automating your processes with Procure-to-Pay solutions. Setting up an automated control and approval workflow will help you offload the vast majority of time-consuming manual tasks so your accountants can focus more on things like performing analyses.  

It should be noted that there are two types of automated reconciliation: two-way matching (invoice and order) and three-way matching (invoice, reception and order). This provides the advantage of much faster processing since the approval step is fully automated.  

By controlling this KPI, you can check how efficient your process is. This can be especially compelling in terms of the reconciliation tolerance you’ve set up.  

If your KPI is too low, it may mean your tolerance is too strict, and vice versa.  

This is the holy grail that your accounting departments are working toward: fully automated supplier invoice processing with no manual steps, from reception to payment order. This means saving time and money, plus your accounting teams can work on more value-add tasks.  

It can only be achieved by maximizing the number of electronic invoices and automated reconciliations. 

These are two more fundamental KPIs. On-time supplier payment is a major advance for accounts payable and, more generally, for the whole organization.  Beyond the negative impact late payments can have on the supplier relationship, your company could face charges under the law on payment periods.  

Payment periods management is a major challenge for Financial and Accounting Departments

It’s quite clear that you must know your processing times and payment periods so you can take any corrective actions.  

But why is a distinction made between processing times and payment periods? Simply because the processes and the teams involved are not the same.  

Processing times refer to when accountants and approvers process invoices from reception to approval.  

Next comes the payment periods when treasurers authorize the payments.  Payment periods are often exceeded, even when the invoices have been approved on time.  

In these cases, it’s advisable to control both of these indicators separately to detect any bottlenecks based on the most accurate and relevant deductions.  

This KPI supplements the two previous ones, and helps you control your organization’s ability to duly pay your supplier invoices on time and as contracted. Unlike the other two that are measuring time, this one lets you calculate the percentage of duly paid invoices.  

It’s clear that if you want to fully analyze your ability to meet supplier payment deadlines, it’s important to consider the three indicators above.  

Part of the reason you may opt to digitalize your processes is to significantly improve the efficiency and productivity of your accounting teams so they can spend the time saved on high value-added projects.  

Therefore, you must be able to routinely track the volume of invoices that each of your team members is processing within a given period in order to analyze process efficiency and measure the time saved that can be reallocated to other tasks. 

In terms of cutting costs, one of the first measures to take is to check supplier payments and answer the following questions: Have any of them been paid twice? Are they incorrect? If so, why?  

The reasons behind these malfunctions include invoice processing errors, ineffective manual processes, and incorrect data.  

Surprisingly, these are not uncommon situations in organizations. According to our partner Basware, it affects 8% of invoices, even at the organizations with the best-rated invoice processing outcomes that it studied.  

To reduce your costs, save processing time, and resolve anomalies, you must be able to check how many invoices are paid twice or contain an error, and identify the supplier in question. At the same time, it’s advisable to put actions in place like checks for supplier bank details.

We have entered an era when everything we do affects the planet and everyone has a role to play. Businesses are no exception. Making the switch to e-invoicing can considerably reduce CO2 emissions by eliminating paper.  

Companies can track non consumed CO2

Solutions like Basware can measure the number of trees and amount of CO2 that was saved.

When optimizing accounting and finance processes, it’s important to be able to routinely measure these 11 KPIs over time.

Even though you could calculate these metrics manually, automated solutions are the best option. Some of them, such as Basware, include modules that analyze your invoicing data to give you micro and macro visibility, plus data-driven recommendations.