Accounts Receivable, Net

3 Months Ended

Mar. 31, 2017

Accounts receivable, net were as follows:



	March 31, 2017			December 31, 2016
Invoiced	$	661		$	651
Accrued	380			374
Allowance for doubtful accounts	(56		)	(64		)
Accounts Receivable, Net	$	985		$	961

We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness. The allowance for uncollectible accounts receivables is determined principally on the basis of past collection experience as well as consideration of current economic conditions and changes in our customer collection trends.

Accounts Receivable Sales Arrangements

Accounts receivable sales arrangements are utilized in the normal course of business as part of our cash and liquidity management. We have facilities in the U.S., Canada and several countries in Europe that enable us to sell certain accounts receivable, without recourse, to third-parties. The accounts receivables sold are generally short-term trade receivables with payment due dates of less than 60 days.

All of our arrangements involve the sale of our entire interest in groups of accounts receivable for cash. In most instances a portion of the sales proceeds are held back by the purchaser and payment is deferred until collection of the related receivables sold. Such holdbacks are not considered legal securities nor are they certificated. We report collections on such receivables as operating cash flows in the Condensed Consolidated Statements of Cash Flows because such receivables are the result of an operating activity and the associated interest rate risk is de minimis due to their short-term nature. Our risk of loss following the sales of accounts receivable is limited to the outstanding deferred purchase price receivable. These receivables are included in Other current assets in the accompanying Consolidated Balance Sheets and were $53 and $48 at March 31, 2017 and December 31, 2016, respectively.

Under most of the arrangements, we continue to service the sold accounts receivable. When applicable, a servicing liability is recorded for the estimated fair value of the servicing. The amounts associated with the servicing liability were not material.

Of the accounts receivable sold and derecognized from our balance sheet, $473 and $531 remained uncollected as of March 31, 2017 and December 31, 2016, respectively.

Accounts receivable sales were as follows:



	Three Months Ended March 31,
	2017			2016
Accounts receivable sales	$	511		$	592
Deferred proceeds	52			71
Loss on sales of accounts receivable	3			4
Estimated (decrease) increase to operating cash flows⁽¹⁾	(65		)	26

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(1)	Represents the difference between current and prior period receivable sales adjusted for the effects of: (i) the deferred proceeds, (ii) collections prior to the end of the quarter and, (iii) currency.

Finance Receivables, Net

Finance Receivables – Allowance for Credit Losses and Credit Quality

Finance receivables include sales-type leases, direct financing leases and installment loans arising from the marketing of our equipment. Our finance receivable portfolios are primarily in the U.S., Canada and Europe. We generally establish customer credit limits and estimate the allowance for credit losses on a country or geographic basis. Our policy and methodology used to establish our allowance for doubtful accounts has been consistently applied over all periods presented.

The following table is a rollforward of the allowance for doubtful finance receivables as well as the related investment in finance receivables:



Allowance for Credit Losses:	United States			Canada			Europe			Other⁽²⁾		Total
Balance at December 31, 2016	$	55		$	16		$	37		$	2	$	110
Provision	4			—			5			—		9
Charge-offs	(6		)	(2		)	(2		)	—		(10		)
Recoveries and other⁽³⁾	—			2			—			—		2
Balance at March 31, 2017	$	53		$	16		$	40		$	2	$	111
Finance receivables as of March 31, 2017 collectively evaluated for impairment ⁽⁴⁾	$	2,108		$	382		$	1,276		$	51	$	3,817

Balance at December 31, 2015⁽¹⁾	$	54		$	17		$	45		$	2	$	118
Provision	4			1			5			—		10
Charge-offs	(2		)	(2		)	(2		)	—		(6		)
Recoveries and other⁽³⁾	1			2			1			—		4
Balance at March 31, 2016	$	57		$	18		$	49		$	2	$	126
Finance receivables as of March 31, 2016 collectively evaluated for impairment⁽⁴⁾	$	2,157		$	387		$	1,491		$	63	$	4,098

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(1)	In the first quarter 2016, as a result of an internal reorganization, a U.S. leasing unit previously classified in Other was reclassified to the U.S. Prior year amounts have been revised to conform to current year presentation.


(2)	Includes developing market countries and smaller units.


(3)	Includes the impacts of foreign currency translation and adjustments to reserves necessary to reflect events of non-payment such as customer accommodations and contract terminations.


(4)	Total Finance receivables exclude the allowance for credit losses of $111 and $126 at March 31, 2017 and 2016, respectively.

We evaluate our customers based on the following credit quality indicators:

•

Investment grade: This rating includes accounts with excellent to good business credit, asset quality and capacity to meet financial obligations. These customers are less susceptible to adverse effects due to shifts in economic conditions or changes in circumstance. The rating generally equates to a Standard & Poor's (S&P) rating of BBB- or better. Loss rates in this category are normally less than 1%.

•

Non-investment grade: This rating includes accounts with average credit risk that are more susceptible to loss in the event of adverse business or economic conditions. This rating generally equates to a BB S&P rating. Although we experience higher loss rates associated with this customer class, we believe the risk is somewhat mitigated by the fact that our leases are fairly well dispersed across a large and diverse customer base. In addition, the higher loss rates are largely offset by the higher rates of return we obtain with such leases. Loss rates in this category are generally in the range of 2% to 4%.

•

Substandard: This rating includes accounts that have marginal credit risk such that the customer’s ability to make repayment is impaired or may likely become impaired. We use numerous strategies to mitigate risk including higher rates of interest, prepayments, personal guarantees, etc. Accounts in this category include customers who were downgraded during the term of the lease from investment and non-investment grade evaluation when the lease was originated. Accordingly there is a distinct possibility for a loss of principal and interest or customer default. The loss rates in this category are approximately 10%.

Credit quality indicators are updated at least annually and the credit quality of any given customer can change during the life of the portfolio. Details about our finance receivables portfolio based on industry and credit quality indicators are as follows:



	March 31, 2017								December 31, 2016
	Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables		Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables
Finance and other services	$	173	$	347	$	95	$	615	$	181	$	342	$	95	$	618
Government and education	520		63		7		590		543		57		8		608
Graphic arts	132		118		97		347		138		102		107		347
Industrial	81		77		24		182		82		78		24		184
Healthcare	81		49		17		147		79		47		17		143
Other	73		101		53		227		82		103		53		238
Total United States	1,060		755		293		2,108		1,105		729		304		2,138
Finance and other services	54		45		18		117		54		43		15		112
Government and education	50		5		3		58		52		6		2		60
Graphic arts	37		35		25		97		39		37		24		100
Industrial	21		13		8		42		21		13		6		40
Other	33		26		9		68		33		25		8		66
Total Canada	195		124		63		382		199		124		55		378
France	180		221		49		450		181		222		51		454
U.K./Ireland⁽⁴⁾	92		149		11		252		95		148		10		253
Central⁽¹⁾	179		142		18		339		182		148		19		349
Southern⁽²⁾	35		138		13		186		36		131		14		181
Nordics⁽³⁾	26		22		1		49		26		22		1		49
Total Europe	512		672		92		1,276		520		671		95		1,286
Other	34		15		2		51		35		15		2		52
Total	$	1,801	$	1,566	$	450	$	3,817	$	1,859	$	1,539	$	456	$	3,854

_____________________________


(1)	Switzerland, Germany, Austria, Belgium and Holland.


(2)	Italy, Greece, Spain and Portugal.


(3)	Sweden, Norway, Denmark and Finland.


(4)	The December 31, 2016 amounts have been revised to conform to 2017 presentation.

The aging of our billed finance receivables is based upon the number of days an invoice is past due and is as follows:



	March 31, 2017
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Finance and other services	$	15	$	2	$	2	$	19	$	596	$	615	$	12
Government and education	16		1		3		20		570		590		25
Graphic arts	13		1		—		14		333		347		4
Industrial	5		1		1		7		175		182		6
Healthcare	4		1		1		6		141		147		6
Other	11		2		2		15		212		227		4
Total United States	64		8		9		81		2,027		2,108		57
Canada	3		—		—		3		379		382		10
France	3		—		—		3		447		450		21
U.K./Ireland	2		—		—		2		250		252		—
Central⁽¹⁾	3		1		—		4		335		339		6
Southern⁽²⁾	4		1		2		7		179		186		6
Nordics⁽³⁾	1		—		—		1		48		49		—
Total Europe	13		2		2		17		1,259		1,276		33
Other	2		—		—		2		49		51		—
Total	$	82	$	10	$	11	$	103	$	3,714	$	3,817	$	100

	December 31, 2016
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Finance and other services	$	13	$	3	$	1	$	17	$	601	$	618	$	11
Government and education	10		4		3		17		591		608		25
Graphic arts	13		1		—		14		333		347		5
Industrial	4		1		1		6		178		184		5
Healthcare	3		1		1		5		138		143		5
Other	9		2		1		12		226		238		5
Total United States	52		12		7		71		2,067		2,138		56
Canada	3		—		—		3		375		378		8
France	3		—		—		3		451		454		20
U.K./Ireland	2		1		—		3		250		253		1
Central⁽¹⁾	2		1		—		3		346		349		5
Southern⁽²⁾	5		1		1		7		174		181		6
Nordics⁽³⁾	1		—		—		1		48		49		1
Total Europe	13		3		1		17		1,269		1,286		33
Other	3		—		—		3		49		52		—
Total	$	71	$	15	$	8	$	94	$	3,760	$	3,854	$	97

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(1)	Switzerland, Germany, Austria, Belgium and Holland.


(2)	Italy, Greece, Spain and Portugal.


(3)	Sweden, Norway, Denmark and Finland.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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