How Do You Measure the Success of Your Finance Team? KPI Trends in 2022

CFOs, finance managers, and accountants earn a fat figure as annual compensation simply because they shoulder the responsibility of managing the lifeblood of a business—money. However, although most of their operational function has eliminated manual efforts thanks to automation (for example, AP automation and invoice automation), finance teams do have to make key decisions as a part of their job profile. Their ability to implement strategies and materialise the company’s vision is what drives their success.

However, as we reach the middle of 2022, let’s take success measurement as a goal and a way forward. Financial KPIs are a great way to quantify the performance of finance teams, giving clarity on “how much” has been achieved over a period. If you wish to measure the success of your finance team, we bring to you three KPI trends in this blog. Keep a tab on these so that you can win a competitive edge.

Accounts payable (AP) turnover

The truth is that automation has become the big game-changer in the world of finance and accounting in recent times. Gone are the days when finance managers and accountants spent hours doing repetitive tasks, only to find that their productivity and efficiency have plummeted. Let’s take management of accounts payable (AP) for example. Before digitization or automation, accounts and finance professionals grappled with siloed processes and cumbersome tasks. Now that’s changing greatly with AP automation, invoice automation, and real-time invoice processing.

A key metric that highlights the benefits of AP automation is the accounts payable turnover. This KPI indicates the amount of time your business takes to pay off suppliers. A decreasing AP turnover ratio is an indication of potential liquidity problems, meaning your finance team has to beef up cash flow management. Here’s the formula to calculate the AP turnover ratio:

AP Turnover = Total Purchases from suppliers / [(Beginning AP – Ending AP)] / 2)

Quick ratio

Another great indicator for your finance team’s ability to maintain your company’s financial position is the quick ratio. Current liabilities are a part and parcel of every business. But it’s the responsibility of the finance team to ensure these liabilities are paid off on time and in the right way. Your short-term liquidity will be determined greatly by your finance team’s ability to manage existing funds without putting additional pressure on your company’s resources. This ratio is calculated by dividing all current assets excluding inventory by all current liabilities.

The quick ratio is essentially your business’s ability to pay off current liabilities without selling inventory or obtaining additional financing. The higher the ratio result, the better a company’s liquidity and financial health; the lower the ratio, the more likely the company will struggle with paying debts. If your finance team has been efficient in managing your funds, your quick ratio will be greater than 1, which indicates a healthy financial position to pay off liabilities.

Net Profit Margin

Last but not the least, it’s important to know how the efforts of your finance team align with your larger organisational goals. The year 2022 is mostly about recovering from the economic consequences of the COVID-19 pandemic. Revenues and profits took a downturn for businesses across the globe. But it’s time for finance teams to buckle up and take rapid measures to achieve the company’s bottom line. This is exactly what the net profit margin KPI helps in gauging.

The net profit margin is the financial metric that indicates how much money your business is making in relation to revenue or net sales. It’s a percentage of your revenue and other income left after deducting all business costs, which include operating expenses, cost of goods sold (COGS), taxes, and interest. A positive number is an indication of good financial health, meaning your team has been up to the mark. A higher number is always better for your business. It is calculated as:

Net Profit Margin = Net Profit / Revenue * 100

Final thoughts

Measuring the success of your finance team is a continuous process and it requires persistent effort on your part. However, thanks to the real-time availability of KPIs from cloud computing solutions like AP automation and ERPs that finance teams can now report quickly and effortlessly, from a quarterly to weekly basis. The world of finance is dynamic and ever-changing and a company’s finance team has to stay abreast of trends to be able to increase the competitiveness of the company. Do keep the aforementioned KPI trends in mind as you measure the performance of your finance team and get clarity on the way forward. Also, if you are looking for accounts payable invoice automation solution, speak with a Kefron expert to learn more about AP Automation technology by clicking here.