Key Performance Indicators, or KPIs for short, are a tool used to set targets and assess how successfully they have been reached. They’re often used in customer service departments. If you’ve ever been asked to complete a customer satisfaction survey after dealing with a brand, your answers will feed into their KPIs. This sort of feedback helps a business understand if they’re providing a good level of service to customers. Or not!
Using KPIs to manage your bookkeeping
What you can measure, you can manage, which is why KPIs can be a successful way of evaluating your approach to business accounting. It can help foster a more targeted approach, and reduces the risk of working based on assumptions during busy periods. Use your accounts data (or bookkeeping software that has reporting functions) to consider:
- How long it takes for invoices to be paid
- The scale of your late payment problems and how well you’re dealing with them
- Other accounts payable processes such as invoice errors and the time it takes to resolve them
- How your framework of payment terms and pricing is working for you
- Cash flow!
- Deadline management (e.g. HMRC returns)
- Management of paperwork such as receipts and expenses
- The expenses you are and aren’t claiming for to improve tax efficiency
And that’s just for starters! It’s not an exhaustive list, and you can create and track KPIs in a way that suits your business. They’re just a way of helping you to keep a close eye on the things that are most important to your performance, efficiency and development in a whole host of areas, including finance and accounting.
Top tips for using KPIs
Find the balance between aspiration and reality, or you’ll simply be setting the process up to fail. High targets (and the promise of rewards) can help motivate a team, but if they’re unattainable, you’re more likely to destroy morale. Evaluate performance regularly enough to encourage progression, but not so often that you’re in danger of turning into Captain Micromanagement. Plus, if you assess target-related performance too regularly you’re in danger of becoming blind to the actual development taking place.
The feedback gained from this sort of analysis is useful for designing new processes or ways of working, so it’s well worth taking advantage of accounting reports to keep track of business performance. If you’re a Pandle user, you’ll be able to sign in and use the reports function to produce performance information at the touch of a button. It can really help you get to grips with how the business is doing, as well as areas that may need more attention.