The goal of modern finance operations, or FinOps, is to reduce expenses and save time by minimizing or eliminating monotonous, manual finance work across the entire organization. To gauge whether your FinOps is effective, here are the top KPIs that you should consider tracking.
7 KPIs you should be monitoring
- Expense processing time. If you have automated expense reports that employees know how to use, this number should be relatively low. The point of automated expense-processing, after all, is to eliminate the need to chase down employees for receipts or to perform manual receipt verification. Implementing finance automation should help you collect receipts within 30 minutes of a transaction.
- Accounts payable turnover. This is the amount of time it takes from the receipt of an invoice for it to be processed or paid. A best-in-class, automated system should eliminate wasted time from manual bill creation, data entry approval, or mailing paper checks. Your target KPI can be 1 min/invoice by using automated bill pay.
- On-time bill payment rate. This is the rate at which you pay your bills by their due date. You should aim to get this rate as close as possible to 100%. Paying your vendors on time is not only a good business practice, but it can also improve your business credit.
- Electronic invoice rate. This metric measures the percentage of vendors who submit their invoices to payment electronically directly into your system. The higher you can get this rate, the more efficient your payment process.
- Time it takes to close the books. After implementing automation, this number should go consistently down as the accounting team no longer has to engage in tedious tasks like expense categorization. You should be able to close your books in hours instead of weeks.
- Compliance rate. This is a measure of how well your suppliers follow the terms of your contract. A low compliance rate can signal the need to find new vendors or improve the terms of your contract.
- Interest spend. If your company uses credit cards and carries a balance, this is an important metric that can show you how much that balance is costing you each month. The lower you can get this number, the better.
How Construction One improved their expense management KPIs
The national construction management and general contracting company Construction One had a complicated, inefficient expense management system that allowed for human error. When Controller Chris Moberger switched over to the automated Ramp system, he knew that he could use KPIs to measure the success of the transition. The metric that he chose to track was the hours it took to complete the expense reconciliation process each month.
Prior to the switch, that process took 40 hours per month, as the team had to corral employees and subcontractors to individually file their expenses into a shared spreadsheet each month. Then, an accounts payable worker had to go into that spreadsheet, import it into another software system, and reconcile the total amount.
After Construction One partnered with Ramp to streamline and automate the process, the number of hours spent on reconciliation fell to just 10 hours per month—a KPI improvement of 75%!
Construction One could look at other KPIs during the process as well, including the number of expense report errors that required follow up, percentage of off-policy spend, or the dollar amount the company earns in cash back rewards for spending with corporate cards.
How to set up FinOps KPIs for your business
The KPIs for individual companies will vary significantly depending on the goals and size of the organization. A startup focused on building its credit, for example, might be focused on on-time payment KPIs, while a larger organization with many employees filing expense reports might want to find ways to limit off-policy spend.
A recent study from the FinOps Foundation found that respondents collectively tracked hundreds of different KPIs at their businesses. That said, the process for establishing KPIs is the same across all organizations.
- Step #1: Define your business’ FinOps goals. You may want to streamline the expense reporting process, for example. All key stakeholders should participate in this step of the process, including not only FinOps staff but also executives from other business units.
- Step #2: Determine your KPIs. Once you’ve established your goals, you can figure out which KPIs can help you meet those goals. The more specific you can make these metrics, the more useful they’ll be. In the example above, a business might decide to track their expense-processing time or the rate of off-policy spend with the goal of lowering both.
If you’re not sure which KPIs to track, consider what metrics other, similar-sized businesses in your industry might be tracking.
- Step #3: Track the KPIs. Once you’ve established your KPIs, you can begin tracking them. Measuring KPIs at regular intervals over time can help you identify trends and determine whether new policies or procedures are working as intended.
- Step #4: Adjust your goals (and KPIs)—or your business. If you’re meeting or exceeding your KPIs, it may be time to create new goals and KPIs for the business. If, however, you’re failing to meet your agreed upon KPIs, you’ll need to look closer at the business to see what changes are necessary to get back on track.
How to improve FinOps KPIs using Ramp
Using an automated expense system like Ramp can make it easy to track and improve your KPIs. Here’s a look at a few FinOps KPIs that you can see on Ramp—and use to improve your business’ efficiency.:
- Manual-receipt entry rate. Ramp instantly matches receipts sent via text or email, automatically reconciling 90% of receipts.
- Bill creation time. Lower this KPI quickly by using Ramp’s bill pay automation.
- Savings found. Ramp’s AI-powered savings insights can quickly push this KPI higher by surfacing things like duplicate invoices, unused subscriptions, or unusual spend increases.
- Cash backed received. Ramp card users get 1.5% cash back on every purchase.
Tracking KPIs is much easier when you have automated systems in place. Whether you’re looking for expense management, bill pay, or accounting automation, Ramp can help. Contact us today to learn more about our solutions and how they can help your organization reach its FinOps goals.