Accounts Receivable, Net

6 Months Ended

Jun. 30, 2017

Accounts receivable, net were as follows:



	June 30, 2017			December 31, 2016
Invoiced	$	713		$	651
Accrued	380			374
Allowance for doubtful accounts	(56		)	(64		)
Accounts Receivable, Net	$	1,037		$	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 receivable 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 $57 and $48 at June 30, 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, $548 and $531 remained uncollected as of June 30, 2017 and December 31, 2016, respectively.

Accounts receivable sales were as follows:



	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017			2016
Accounts receivable sales	$	567	$	582		$	1,078		$	1,174
Deferred proceeds	56		59			108			130
Loss on sales of accounts receivable	3		4			6			8
Estimated increase (decrease) to operating cash flows⁽¹⁾	54		(11		)	(11		)	15

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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
Provision	4			1			1			—		6
Charge-offs	(10		)	(1		)	(3		)	—		(14		)
Recoveries and other⁽³⁾	1			—			4			—		5
Balance at June 30, 2017	$	48		$	16		$	42		$	2	$	108
Finance receivables as of June 30, 2017 collectively evaluated for impairment ⁽⁴⁾	$	2,028		$	383		$	1,336		$	64	$	3,811

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
Provision	—			1			7			—		8
Charge-offs	(3		)	(2		)	(3		)	—		(8		)
Recoveries and other⁽³⁾	—			1			(2		)	—		(1		)
Balance at June 30, 2016	$	54		$	18		$	51		$	2	$	125
Finance receivables as of June 30, 2016 collectively evaluated for impairment⁽⁴⁾	$	2,149		$	389		$	1,424		$	64	$	4,026

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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 $108 and $125 at June 30, 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:



	June 30, 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	$	162	$	341	$	98	$	601	$	181	$	342	$	95	$	618
Government and education	490		60		8		558		543		57		8		608
Graphic arts	116		115		95		326		138		102		107		347
Industrial	81		77		24		182		82		78		24		184
Healthcare	81		47		16		144		79		47		17		143
Other	69		95		53		217		82		103		53		238
Total United States	999		735		294		2,028		1,105		729		304		2,138
Finance and other services	53		43		21		117		54		43		15		112
Government and education	48		5		3		56		52		6		2		60
Graphic arts	36		33		30		99		39		37		24		100
Industrial	20		12		9		41		21		13		6		40
Other	32		26		12		70		33		25		8		66
Total Canada	189		119		75		383		199		124		55		378
France	191		231		50		472		181		222		51		454
U.K./Ireland⁽⁴⁾	96		155		11		262		95		148		10		253
Central⁽¹⁾	187		145		18		350		182		148		19		349
Southern⁽²⁾	38		150		13		201		36		131		14		181
Nordics⁽³⁾	28		22		1		51		26		22		1		49
Total Europe	540		703		93		1,336		520		671		95		1,286
Other	37		23		4		64		35		15		2		52
Total	$	1,765	$	1,580	$	466	$	3,811	$	1,859	$	1,539	$	456	$	3,854

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(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:



	June 30, 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	$	12	$	1	$	1	$	14	$	587	$	601	$	10
Government and education	14		—		3		17		541		558		19
Graphic arts	14		1		—		15		311		326		6
Industrial	4		—		1		5		177		182		5
Healthcare	4		—		1		5		139		144		5
Other	6		1		1		8		209		217		4
Total United States	54		3		7		64		1,964		2,028		49
Canada	3		—		—		3		380		383		9
France	3		—		—		3		469		472		14
U.K./Ireland	3		—		—		3		259		262		—
Central⁽¹⁾	2		1		1		4		346		350		6
Southern⁽²⁾	6		1		1		8		193		201		6
Nordics⁽³⁾	—		—		—		—		51		51		—
Total Europe	14		2		2		18		1,318		1,336		26
Other	3		—		—		3		61		64		—
Total	$	74	$	5	$	9	$	88	$	3,723	$	3,811	$	84

	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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