Financial Tags vs. Dimensions in Dynamics365: A Closer Look

Microsoft Dynamics 365 is a powerful, feature rich ERP system with a wide range of financial management features. One of the more recent features added to the platform is Financial Tags, which brings a powerful and flexible way to report additional financial information when entering transaction data. Dynamics365 Financial Tags were designed as an alternative to Financial Dimensions in situations where greater flexibility and less structure are required, and can work with your current Financial Dimension configuration. In this article, we’ll go over what Financial Tags are and their advantages compared to Financial Dimensions, as well as some real-world examples where you can use Financial Tags.

What are Dynamics365 Financial Tags?

Financial Tags are user-defined fields that can be attached to transactions in D365. A company can have up to 20 unique financial tags to help them categorize data such as marketing campaigns, sales regions, expense types, or document numbers. Financial Tags are stored on the accounting entries that are created for transactions, which means you can easily report on financial data by tag value. Unlike Financial Dimensions, Financial Tags are not stored on subledger entries such as the Customer and Vendor subledgers, so they don’t have the same level of detail as Financial Dimensions.

Comparing Dimensions and Tags

We’ve touched on some of the differences between Financial Dimensions and Financial tags above, but there are a few key differences that will affect an organizations decision to use one over the other:

1. Structure and Validation – Financial Tags are not subject to the same validation and structure that Financial Dimensions are. Financial Tags cannot be added to an account structure, so no validation is performed at time of posting. This means that tags have minimal impact on system performance, even if there are many of them on a transaction.
2. Required Tags & Defaulting – Financial Dimensions can have default values set in a number of places, such as on the customer, vendor, or main account. They can also be required via the account structures for an entity. Financial Tags have limited functionality for setting up default values and generally need to be defined on an as-needed basis. There is also no way to require that users enter a tag.
3. Reporting – Financial Tags cannot be used in dimension set definitions, so you can’t use them when running reports such as the Trial Balance. However, drilling down on these reports will show the transactions and their associated Financial Tags, which can then be exported to Excel or consumed via Power BI.
4. Modification – Tags can be modified after a transaction is posted while Financial Dimensions cannot. This is because Tags are not part of the ledger account definition, so changes will not impact financial reporting. An audit trail is maintained for any changes that are made to a Tag after posting.
5. Activation – Tags can be activated as soon as they are created and require no down time. Financial Dimensions require that Dynamics be in maintenance mode before they can be activated.

Use Cases

1. Ad Hoc Categorization – Dynamics365 Financial tags are perfect for scenarios requiring quick, unstructured categorization of transactions without the overhead of defining new dimensions. For example, if you want to label an expense transaction with “on-site meals,” you could easily create and assign a tag for this purpose.
2. Temporary or Occasional Needs – When your business has temporary reporting requirements that are not expected to be long-term, financial tags are an efficient solution. If you’re running a short-term marketing campaign or managing a one-time event, tags can be used without the need to alter your existing dimension setup.
3. Department Specific Tracking – While “Department” is a frequently defined Financial Dimension, individual departments may have tracking needs that do not fit within the structure of an organization’s existing Dimensions. Individual departments can use Financial Tags to categorize transactions in a way that’s relevant to their operations and processes
4. Quick Reporting and Analysis – Financial Tags make it easier to filter and group data for reporting and analysis. This can be particularly useful when you need quick insights into certain types of transactions or expenditures without the complexity of modifying dimension hierarchies.

The above is just a small sample of the capabilities of financial tags and how they can enhance your financial reporting and categorization in D365.