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Working with Portfolios

Overview

Working with portfolios includes the following tasks:

  • Defining portfolios

  • Scheduling the generation of portfolio statistics

  • Analyzing portfolio statistics

  • Using portfolio data for customer financial analysis

You use the Portfolio Management module to define portfolios, schedule the generation of portfolio statistics, and graph, print, and export the results of portfolio events. You use the Financial Analysis feature of the Customer Analysis module to compare a customer's financials to Financial Benchmark portfolio data, or to generate Expert Comments. Expert Comments are based on either Financial Benchmark or Standard Financial portfolios.

You can assign a portfolio to a customer by selecting the portfolio in the Analysis Setup section of the customer's Basic screen. When you assign a portfolio to a customer, the portfolio appears first in all portfolio lists for that customer.

Defining portfolios

You can define Financial Benchmark and Exposure portfolios based on selected groups of your customers, and Standard portfolios based on external databases of industry standards. The following sections describe how you define each portfolio type: Defining Portfolios Based on Your Customers and Defining Standard Portfolios.

Defining portfolios based on your customer

Financial Benchmark and Exposure portfolios are based on groups of your customers that share critical characteristics. When defining portfolios based on customers, you do the following:

  • Enter information for the portfolio.

  • Define member selection criteria. These are the rules eCredit uses to select portfolio members from your customer base.

  • Define a default metric selection criteria that is applied to all financial statements or exposure data.

  • For Exposure portfolios:

    • Define the portfolio metrics required for your exposure analysis.  

    • Define metric selection criteria that are applied to individual metrics.  

    • Specify whether you want the portfolio data to be grouped by business unit, collector group, or time period.

Careful definition and review of the conditions that you use to select customers for a portfolio are required to ensure the validity of the statistics calculated for the portfolio. You must also ensure that the metrics that the portfolio uses are reliably entered for your customers. Reviewing member selection criteria for market relevance and ensuring that eCredit has the customer data required by a portfolio constitute the basis for useful performance comparisons.

Click one of the following links for more detailed information about working with portfolios:

  • Portfolio Information

    Portfolio information includes the following:

    • Portfolio type. The available types include Financial Benchmark, Exposure or Standard Financial.

    • Name for the portfolio and, optionally, a description

    • Minimum number of members. You enter this number according to your requirements, but the number must be two or greater. If the portfolio definition does not generate the minimum number of members, the portfolio execution does not complete successfully.

    • Maximum number of members set by eCredit. If the portfolio exceeds the maximum number of members, the portfolio execution does not complete successfully.

    • Portfolio status as active or inactive. If the status is Inactive, you cannot generate statistics for a portfolio. An Inactive status ensures that statistics are not generated until you have finalized the portfolio definition.

    • E-mail address for notification of the status of statistics generation.

    • Whether missing values are treated as zeros when eCredit generates statistics. If you do not select to treat missing values as zeros, all entries that have no value are not included in the portfolio when eCredit generates statistics. The selection you make here applies to all metrics for a portfolio.

    You can also enter details for the portfolio that vary by portfolio type. These details are either required or optional characteristics. For example, for a Financial Benchmark portfolio, you are required to specify the financial format that the portfolio uses.  

  • Changing Portfolio Information

    After you save information for a portfolio, you are able to change any of the information. However, for portfolios that have been successfully executed, it is important to consider what effect the changes you make will have on trend analysis.

    For example, for Exposure portfolios, changing the Group or Period Type, or adding or editing a metric selection criteria could have a significant impact on the comparison for trend analysis. For Financial Benchmark portfolios, changing the Annualize selection, Currency used to convert results, or Treating Missing Values as Zero selection could alter portfolio results, so that the comparison of events before and after the changes might not be valid.

    When you change portfolio information for an active portfolio, the status of the portfolio changes to inactive. When you have finalized the portfolio changes, you must change the status to Active to generate statistics for the portfolio using the modified definition.

  • Portfolio Metrics

    Metrics are the data that eCredit uses when generating statistics for the portfolio. For Financial Benchmark portfolios, when you select a financial format for the portfolio, the portfolio includes all lines items and ratios defined for the format. For Exposure portfolios, you select metrics from a list of your Accounts Receivable and performance data, and certain credit line fields.

    For an Exposure portfolio, when adding a new metric, you specify whether a missing entry for that metric is treated as zero, or is not used in the portfolio calculation. You also select a summary type for the metric. This is the mathematical operation performed on the metric when eCredit generates statistics. eCredit supports the following summary type operations: total, count, average, minimum, maximum, and percentile.

  • Selection Criteria Creation

    For portfolios based on your customers, you must define selection criteria for portfolio members, and optionally for portfolio metrics. Selection criteria are conditions that consist of a left and a right expression connected by a logical operator, such as equal to, or greater than. The condition indicates the type of information sought and the value that the condition must satisfy. For selection criteria with multiple conditions, you must use the AND or OR logical operators to determine how many conditions must be true to meet the selection criteria.

  • Member Selection Criteria Definition

    When defining member selection criteria, you choose the characteristics that you feel best distinguish your customers from each other, based on how you analyze customers in the credit decision process. The conditions you define are applied to the eCredit database to extract subsets of customers for analysis that share these distinguishing characteristics. By defining portfolios that are representative of different segments of your customer base, you can compare a customer's performance to the performance of the customer's most relevant peers.

    eCredit sets the maximum number of members a portfolio can have: 10,000 for an Exposure portfolio and 500 for a Financial Benchmark portfolio. You set the minimum number of members, but this number must be two or greater. Typically, 30 members is an adequate sample size for a Financial Benchmark portfolio.

    If a portfolio definition generates a number of members that is less than the minimum number you enter, or greater than the maximum number entered by eCredit, the portfolio execution does not complete successfully.

    When defining conditions for member selection, you can use a predefined subset of fields from the eCredit database in the condition. Your subscriber setup can specify that your additional information fields are also available to use in expressions for member selection criteria. See Appendix H: Portfolio Member Selection Criteria.

    Note: Any customers that have been designated as nondisclosure accounts are excluded from membership in a portfolio. More

  • Metric Selection Criteria

    Metric selection criteria are conditions that you define to include in the portfolio only metrics that meet the condition. For both Financial Benchmark and Exposure portfolios, you can define a default metric selection criteria that is automatically associated with all metrics. For Exposure portfolios, you can define additional metric selection criteria that you associate with individual metrics instead of the default selection criteria.

    For example, for Financial Benchmark portfolios, you might define a default metric selection criteria that has conditions to include in the portfolio only statements that cover twelve months, or only statements entered in a certain currency. If a customer might have more than one statement for a time period, use a default metric selection criteria to specify the statement you want included in the portfolio.

    When defining conditions for metric selection criteria, certain fields are available to use in the conditions. The available fields depend on the portfolio type, as described in the following lists:

    For Financial Benchmark portfolios, the following fields are available to use in conditions for default metric selection criteria:

    • Currency

    • Financial Format

    • Statement Months

    • Statement Date

    • Statement Preparation

    • Statement Type 1-3

    For Exposure portfolios, the following fields are available to use in conditions for default metric selection criteria, and for selection criteria that you define for individual metrics:

    • Business Unit (AR Data)

    • Collector Group

    • Credit line approved flag

    • Approved Credit Line

    • Requested credit line amount

    • Recommended credit line

    • Allocated credit line to business unit

    • Total A/R balance (Metric Selection)

    • Aging Current

    • Aging Bucket 1-9

    • A/R Summary Date

    • A/R Currency

    • Credit line effective date

    • Credit line expiry date

    • Payment Performance Matrix 1-10

  • Grouping Data for Exposure Portfolios

    For Exposure portfolios, you can select to group the data by Period Type, Business Unit, or Collectors Group. You select a Period Type for the portfolio in the Portfolio Type Details section of the Portfolio Definition screen. The Period Type you select and the type of metrics you include in the portfolio affect the selections you can make in the Groups section of the screen.  

    Use the following guidelines when selecting groups for exposure data:
     

    If you include these types of metrics in the portfolio

    And select these Period Types for the portfolio

    These are the available ways to group the data

    Accounts Receivable data only

    Weekly, Monthly, or Quarterly

    You can only group the data by the selected Period Type

     

    Latest

    You can group the latest data by Business Unit or Collector group.

    Credit Line metrics only

    Latest
    Note    : This is the only Period Type that can be selected for credit line metrics.

    You can group the latest data by Business Unit.
     

    Both Accounts Receivable and Credit Line metrics

    Latest
    Note:     This is the only Period Type that you can use when mixing A/R and credit Line data.

    None are available. The data is grouped only as the latest available data.

  • Standard Portfolios Definition

    Standard Financial portfolios are used to generate Expert Comments in the Financial Analysis feature. When defining Standard Financial portfolios you:

    • Enter portfolio information, such as the name, notification e-mail, the minimum and maximum number of members, and whether to treat missing values as zeros.

    • Add the values for the percentile distribution for financial statement ratios. You obtain these values from external databases of industry standards.

    When adding a Standard Financial portfolio, you enter the minimum, maximum, and median values, and the values for the 20th, 40th, 60th, and 80th percentiles. The percentile distribution for each ratio is a scale for gauging the performance of individual customers.

    When entering a value for a ratio, you can enter the value as is, or adjust the data to meet your current expectations. You can add multiple Standard Financial portfolios to represent different industry segments in your customer base.

    The following ratios are used when eCredit generates Expert Comments:
     

    • Net Profit Margin

    • Current Asset Turnover

    • Debt to Tangible Equity

    • Gross Profit Margin

    • Total Asset Turnover

    • Current Liability/Total Liability

    • Return on Assets

    • Accounts Payable Turnover

    • Interest Coverage

    • Return on Tangible Equity

    • Net Working Capital Cycle

    • Z-Score

    • Accounts Receivable Turnover

    • Current Ratio

    • Sales Trend

    • Inventory Turnover

    • Quick Ratio

     

    The more complete a portfolio, the greater its validity. When adding a portfolio, eCredit recommends that you define as many of the ratios as possible. You should review your Standard portfolios periodically and carefully for market relevance to determine if any modifications to financial ratio values are required.

  • Scheduling Statistics Generation

    For all portfolio types except Standard portfolios, eCredit generates statistics. Each generation of statistics is referred to as an event, and each event is assigned a unique identifying number.

    During your subscriber setup, the eCredit Professional Services Organization schedules the generation of portfolio statistics at the frequency that you request. Using the Portfolio Management module, you can change the frequency specified during your subscriber setup. For recurring schedules, your subscriber setup specifies the maximum number of schedules that your subscriber organization can have for each recurring schedule type (quarterly, monthly, or weekly). You will not be able to save a new schedule once the maximum for that schedule type has been reached.

    A portfolio can have only one recurring schedule of a particular type at one time. If you try to schedule a recurring event when one already exists, a warning advises you that this will overwrite the existing schedule if you proceed..

    When you enter a recurring schedule for a portfolio, if you have the proper Admin capabilities, you can view the recurring schedule for  the portfolio using the Scheduled Events feature of the Admin module.

    When defining a portfolio, you can schedule portfolio statistics as a one-time event to validate the portfolio definition. When you schedule a one-time event, the event is submitted for execution when you Click Save.

    Important: To avoid performance issues, schedule a one-time generation of portfolio statistics during non-peak hours. Recurring schedules are always executed during non-business hours.

    Parameters

    Parameters are dynamic values that you are required to enter when scheduling the generation of portfolio statistics. Specifying values at run-time ensures that the portfolio includes data for the specific time frame you are targeting.

  • Financial Statement Parameters

    For Financial Benchmark portfolios, you specify dynamic parameters in the following ways:

    For one-time generation:

    • In the Quarter field, select the quarter for the financial statements that you want included in the portfolio. You can select to include the most current (Last), the statement for the current quarter based on execution date (Current), First, Second, Third, or Fourth.

    • In the Year field, if you select First, Second Third, or Fourth for the quarter, you must enter the Year for the statements you want to include. If you select Current or Last for the quarter, the Year field defaults to the current year, and is read-only.

    For recurring generation:

    • From the recurring list, select the frequency of execution as Quarterly, Monthly, or Weekly.

    • In the Quarter field, select the quarter for the financial statements that you want included in the portfolio. You can select Last or Current.

    • The Year field defaults to the year in which the portfolio executes, and is read-only.

    The parameters you enter determine the statements that are included in the portfolio. Information that you enter for the portfolio when defining it also affects the statements that are included.

    For example, the Look Back and Forward months you can specify when defining a Financial Benchmark portfolio are added to the time frame established by the quarter and year specified at run-time. This establishes a different time frame that eCredit uses when selecting statements for the portfolio.

  • Exposure Portfolio Parameters

    For Exposure portfolios, you specify dynamic parameters in the following ways:

    For one-time generation, select an Start Date and End Date for the time frame that you want the portfolio to use. The portfolio searches this time frame for the data, selecting as many records as it finds for the Period Type you entered when defining the portfolio.

    For recurring generation:

    • From the recurring list, select the frequency of execution as Quarterly, Monthly, or Weekly.

    • In the Portfolio Period (in Months) field, enter the number of months for which you want eCredit to look for portfolio data.

    Note:  For recurring generation, you do not need to enter a Start and End date. eCredit uses the last day of the previous month for the end date. The Start date is calculated by subtracting the number of Portfolio Period months from the End Date.

    The parameters you enter determine the statements that are included in the portfolio. Information that you enter for the portfolio when defining it also affects the exposure data that is included. For Exposure portfolios, the Periods Type you specify when defining the portfolio determines the type of data that is selected for the portfolio, as well as the number of records for the data. For example, if you define the portfolio to include data for the weekly period type, and then specify the Portfolio Period as 3 months, the portfolio could include weekly data for each of the 12 weeks included in the period.

  • Portfolio Statistics Analysis

    When portfolio statistics are generated, you can view, graph, print, or export the results to a spreadsheet application. You can export the customer raw data to a spreadsheet, and perform trend analysis by viewing the results for multiple events. When graphing data, you can select up to 10 metrics.

    For a Financial Benchmark portfolio, the portfolio event details include an average financial and cash flow statements, average ratios, and the percentile distribution for the average ratios.

    For an exposure portfolio, the event details include the Accounts Receivable, performance, and credit line data selected for the portfolio. The portfolio can be designed to group the data by business unit, collectors group, or period type.

  • Using Portfolio Data for Customer Financial Analysis

    Financial Benchmark portfolios can be used to compare the portfolio average financial statement, average cash flow statement, and average ratios to this same financial data for a customer. To compare a customer's financials to a Financial Benchmark portfolio, the customer's financial statements must be entered in the same format as the Financial Benchmark portfolio, and the customer must be included in the portfolio as a member.

    In the Financial Analysis feature, using either a Financial Benchmark or Standard portfolio, you can generate Expert Comments that compare a customer's ratios to the portfolio average ratios. More

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