Portfolio
Analysis - A Corporate Planning Tool
How
do you determine the quality of your accounts receivable
portfolio?
Many
credit departments use the Days Sales Outstanding
(DSO) figure assuming that customers' payment trends
are related to risk. However, how a customer pays
your firm is often a poor indicator of risk. Many
high risk customers pay promptly or within acceptable
terms. Conversely, low risk customers often are given
longer terms to accommodate special inventory programs.
As further evidence, in most scoring systems developed
by credit departments, how a customer pays the firm
accounts for less than 10% of the overall score. Finally,
the DSO calculation can be affected by factors outside
of the credit department's control, such as sales
fluctuations.
Corporate
Credit Manager software uses the Overall Risk Rating,
Financial Risk Rating or Your Pay History score (first
Traditional scoring item) to classify your customer
base, or segments thereof, into six quality levels
corresponding to the scoring scale of 1-6.
Any
of four balances may be reported on: Accounts Receivable,
Credit Requested, Credit Approved or Credit Open.
Generate reports "By Years" to see overall
trends or "By Category" enabling you to
determine if certain groups of customers carry more
risk than others.
Corporate Credit Manager's Portfolio Reports can
also aid in corporate planning by allowing you to
follow developing trends. They help focus management
attention on the amount of bad debts for each risk
category, pricing methodologies, sales projections,
overly rigid applications of credit policy, credit
department staffing and expenses, and other issues
vital to your company's future.
These portfolio reports can be used to see the overall
portfolio as well as specific segments.
The
following is an example of a built-in portfolio reports.
Note the Report Writer gives you the tools to create
additional customized reports.
The
following is a sample portfolio report:
