Finance Receivables, Net

9 Months Ended

Sep. 30, 2018

Financing Receivable, Net [Abstract]

Accounts Receivable, Net

Accounts receivable, net were as follows:



	September 30, 2018			December 31, 2017
Invoiced	$	1,013		$	1,048
Accrued	334			368
Allowance for doubtful accounts	(57		)	(59		)
Accounts receivable, net	$	1,290		$	1,357

Amounts to be invoiced in the subsequent quarter for current services provided are included in amounts accrued.

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. The accounts receivable sold are generally short-term trade receivables with payment due dates of less than 60 days. During the fourth quarter 2017, we terminated all accounts receivable sales arrangements in North America and all but one arrangement in Europe. The remaining facility in Europe enables us to sell accounts receivable associated with our distributor network on an ongoing basis, without recourse. Under this arrangement, we sell our entire interest in the related accounts receivable for cash and no portion of the payment is held back or deferred by the purchaser.

Of the accounts receivable sold and derecognized from our balance sheet, $98 and $161 remained uncollected as of September 30, 2018 and December 31, 2017, respectively.

Accounts receivable sales were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Accounts receivable sales⁽¹⁾	$	66		$	520		$	297		$	1,598
Deferred proceeds	—			56			—			164
Loss on sales of accounts receivable	1			3			2			9
Estimated decrease to operating cash flows⁽²⁾	(34		)	(77		)	(61		)	(83		)

__________________________

(1)

Customers may also enter into structured-payable arrangements that require us to sell our receivables from that customer to a third-party financial institution, which then makes payments to us to settle the customer's receivable. In these instances, we ensure the sale of the receivables are bankruptcy remote and the payment made to us is without recourse. The activity associated with these arrangements is not reflected in this disclosure as payments under these arrangements have not been material and these are customer directed arrangements.


(2)	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. In third quarter 2018, the $34 decrease reflected lower sales consistent with the seasonality of our European operations.

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⁽¹⁾		Total
Balance at December 31, 2017	$	56		$	15		$	35		$	2	$	108
Provision	5			—			4			—		9
Charge-offs	(5		)	(1		)	(4		)	—		(10		)
Recoveries and other⁽²⁾	—			—			1			—		1
Balance at March 31, 2018	$	56		$	14		$	36		$	2	$	108
Provision	4			1			4			—		9
Charge-offs	(4		)	(1		)	(3		)	—		(8		)
Recoveries and other⁽²⁾	—			—			(2		)	—		(2		)
Balance at June 30, 2018	$	56		$	14		$	35		$	2	$	107
Provision	2			—			4			—		6
Charge-offs	(2		)	(2		)	(4		)	—		(8		)
Recoveries and other⁽²⁾	1			1			—			—		2
Balance at September 30, 2018	$	57		$	13		$	35		$	2	$	107
Finance receivables as of September 30, 2018 collectively evaluated for impairment ⁽³⁾	$	1,950		$	352		$	1,242		$	57	$	3,601

Balance at December 31, 2016	$	55		$	16		$	37		$	2	$	110
Provision	4			—			5			—		9
Charge-offs	(6		)	(2		)	(2		)	—		(10		)
Recoveries and other⁽²⁾	—			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⁽²⁾	1			—			4			—		5
Balance at June 30, 2017	$	48		$	16		$	42		$	2	$	108
Provision	1			—			3			—		4
Charge-offs	(2		)	(1		)	(3		)	—		(6		)
Recoveries and other⁽²⁾	8			1			1			—		10
Balance at September 30, 2017	$	55		$	16		$	43		$	2	$	116
Finance receivables as of September 30, 2017 collectively evaluated for impairment⁽³⁾	$	1,992		$	391		$	1,339		$	66	$	3,788

__________________


(1)	Includes developing market countries and smaller units.


(2)	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.


(3)	Total Finance receivables exclude the allowance for credit losses of $107 and $116 at September 30, 2018 and 2017, 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 5%.

•

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 generally in the range of 7% to 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:



	September 30, 2018								December 31, 2017
	Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables		Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables
Finance and other services	$	174	$	331	$	90	$	595	$	199	$	345	$	75	$	619
Government and education	455		67		9		531		490		61		6		557
Graphic arts	83		132		94		309		84		97		141		322
Industrial	80		82		16		178		82		84		14		180
Healthcare	79		51		10		140		88		48		9		145
Other	63		89		45		197		68		98		40		206
Total United States	934		752		264		1,950		1,011		733		285		2,029
Finance and other services	50		36		22		108		54		42		27		123
Government and education	40		4		3		47		48		5		5		58
Graphic arts	26		30		27		83		34		35		27		96
Industrial	17		13		9		39		20		12		11		43
Other	36		22		17		75		36		25		16		77
Total Canada	169		105		78		352		192		119		86		397
France	223		186		18		427		234		226		22		482
U.K./Ireland	117		116		8		241		106		150		10		266
Central⁽¹⁾	174		141		13		328		189		149		16		354
Southern⁽²⁾	43		145		13		201		52		144		13		209
Nordics⁽³⁾	26		18		1		45		29		21		1		51
Total Europe	583		606		53		1,242		610		690		62		1,362
Other	34		20		3		57		38		28		6		72
Total	$	1,720	$	1,483	$	398	$	3,601	$	1,851	$	1,570	$	439	$	3,860

_____________________________


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


(2)	Italy, Greece, Spain and Portugal.


(3)	Sweden, Norway, Denmark and Finland.

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



	September 30, 2018
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Finance and other services	$	14	$	3	$	2	$	19	$	576	$	595	$	9
Government and education	18		3		2		23		508		531		20
Graphic arts	12		1		—		13		296		309		6
Industrial	5		1		1		7		171		178		5
Healthcare	4		1		1		6		134		140		4
Other	6		1		1		8		189		197		4
Total United States	59		10		7		76		1,874		1,950		48
Canada	7		2		1		10		342		352		21
France	6		—		—		6		421		427		18
U.K./Ireland	2		—		—		2		239		241		1
Central⁽¹⁾	1		1		1		3		325		328		8
Southern⁽²⁾	3		1		1		5		196		201		7
Nordics⁽³⁾	1		—		—		1		44		45		—
Total Europe	13		2		2		17		1,225		1,242		34
Other	3		—		—		3		54		57		—
Total	$	82	$	14	$	10	$	106	$	3,495	$	3,601	$	103

	December 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	$	18	$	3	$	1	$	22	$	597	$	619	$	12
Government and education	18		3		3		24		533		557		21
Graphic arts	12		1		—		13		309		322		6
Industrial	6		1		1		8		172		180		4
Healthcare	5		1		1		7		138		145		5
Other	7		1		1		9		197		206		3
Total United States	66		10		7		83		1,946		2,029		51
Canada	8		2		1		11		386		397		17
France	6		—		—		6		476		482		22
U.K./Ireland	3		—		—		3		263		266		—
Central⁽¹⁾	1		2		—		3		351		354		6
Southern⁽²⁾	4		1		1		6		203		209		6
Nordics⁽³⁾	—		—		—		—		51		51		—
Total Europe	14		3		1		18		1,344		1,362		34
Other	3		—		—		3		69		72		—
Total	$	91	$	15	$	9	$	115	$	3,745	$	3,860	$	102

_____________________________

(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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