Accounts Receivable, Net

9 Months Ended

Sep. 30, 2019

Accounts receivable, net were as follows:



	September 30, 2019			December 31, 2018
Invoiced	$	939		$	999
Accrued	305			333
Allowance for doubtful accounts	(56		)	(56		)
Accounts receivable, net	$	1,188		$	1,276

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. We have one facility in Europe that 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, $94 and $131 remained uncollected as of September 30, 2019 and December 31, 2018, respectively.

Accounts receivable sales were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Accounts receivable sales⁽¹⁾	$	67	$	66	$	265	$	297
Loss on sales of accounts receivable	1		1		2		2

__________________________

(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.

Finance Receivables, Net

Finance receivables include sales-type leases and installment loans arising from the marketing of our equipment. These receivables are typically collateralized by a security interest in the underlying assets. Amounts disclosed below at December 31, 2018 were accounted for under ASC 840, Leases, which was superseded by ASC 842, Leases, adopted on January 1, 2019. Differences upon adoption were not material. Refer to Note 2 - Recent Accounting Pronouncements for additional information.

Finance receivables, net were as follows:



	September 30, 2019			December 31, 2018
Gross receivables	$	3,795		$	4,003
Unearned income	(414		)	(439		)
Subtotal	3,381			3,564
Residual values	—			—
Allowance for doubtful accounts	(93		)	(92		)
Finance receivables, net	3,288			3,472
Less: Billed portion of finance receivables, net	106			105
Less: Current portion of finance receivables not billed, net	1,145			1,218
Finance receivables due after one year, net	$	2,037		$	2,149

A summary of future contractual maturities of our gross finance receivables, including those previously billed is as follows:



	September 30, 2019		December 31, 2018
12 Months⁽¹⁾	$	1,471	$	1,543
24 Months	1,044		1,108
36 Months	705		755
48 Months	406		425
60 Months	152		158
Thereafter	17		14
Total	$	3,795	$	4,003

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(1)	Includes amounts previously billed of $108 and $107 as of September 30, 2019 and December 31, 2018, respectively.

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. The allowance for Credit Losses is determined principally on the basis of origination year and past collection experience as well as consideration of current economic conditions and changes in our customer collection trends. Our policy and methodology used to establish our allowance for doubtful accounts has been consistently applied over all periods presented.

The allowance for doubtful finance receivables as well as the related investment in finance receivables were as follows:



Allowance for Credit Losses:	United States			Canada			Europe			Other⁽¹⁾		Total
Balance at December 31, 2018	$	53		$	12		$	25		$	2	$	92
Provision	4			1			4			—		9
Charge-offs	(4		)	(1		)	(3		)	—		(8		)
Recoveries and other⁽²⁾	—			—			—			—		—
Balance at March 31, 2019	$	53		$	12		$	26		$	2	$	93
Provision	4			1			3			—		8
Charge-offs	(5		)	(3		)	(3		)	—		(11		)
Recoveries and other⁽²⁾	1			2			—			—		3
Balance at June 30, 2019	$	53		$	12		$	26		$	2	$	93
Provision	6			—			2			—		8
Charge-offs	(5		)	(1		)	(3		)	—		(9		)
Recoveries and other⁽²⁾	1			—			—			—		1
Balance at September 30, 2019	$	55		$	11		$	25		$	2	$	93
Finance receivables as of September 30, 2019 collectively evaluated for impairment ⁽³⁾	$	1,900		$	318		$	1,120		$	43	$	3,381

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⁾⁽⁴⁾	$	1,960		$	352		$	1,242		$	47	$	3,601

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(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 $93 and $107 at September 30, 2019 and 2018, respectively.


(4)	As a result of an internal reorganization, XBS amounts, previously classified as Other, were reclassified to the U.S. in first quarter 2019. Prior year amounts have also been reclassified to conform to the current year presentation.

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, 2019								December 31, 2018
	Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables		Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables
Finance and other services	$	166	$	332	$	87	$	585	$	177	$	334	$	88	$	599
Government and education	440		54		16		510		453		63		9		525
Graphic arts	70		140		81		291		82		131		87		300
Industrial	79		85		16		180		86		82		16		184
Healthcare	61		63		12		136		86		48		9		143
Other	62		107		29		198		63		90		42		195
Total United States⁽¹⁾	878		781		241		1,900		947		748		251		1,946
Finance and other services	59		30		17		106		52		33		20		105
Government and education	35		4		3		42		38		3		4		45
Graphic arts	19		26		27		72		22		30		26		78
Industrial	18		11		11		40		16		12		9		37
Other	29		18		11		58		34		21		15		70
Total Canada	160		89		69		318		162		99		74		335
France	199		141		20		360		232		157		29		418
U.K./Ireland	142		78		6		226		150		87		7		244
Central⁽²⁾	169		117		8		294		196		123		8		327
Southern⁽³⁾	57		129		10		196		52		136		17		205
Nordics⁽⁴⁾	25		18		1		44		28		15		2		45
Total Europe⁽⁵⁾	592		483		45		1,120		658		518		63		1,239
Other⁽¹⁾	28		13		2		43		31		13		—		44
Total	$	1,658	$	1,366	$	357	$	3,381	$	1,798	$	1,378	$	388	$	3,564

_____________________________


(1)	As a result of an internal reorganization, XBS amounts, previously classified as Other, were reclassified to the U.S. in first quarter 2019. Prior year amounts have also been reclassified to conform to the current year presentation.


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


(3)	Italy, Greece, Spain and Portugal.


(4)	Sweden, Norway, Denmark and Finland.


(5)	Prior year amounts have been recasted to conform to the current year presentation.

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, 2019
	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	$	4	$	3	$	22	$	563	$	585	$	15
Government and education	17		3		3		23		487		510		19
Graphic arts	13		1		1		15		276		291		6
Industrial	6		2		1		9		171		180		9
Healthcare	4		2		1		7		129		136		6
Other	6		1		1		8		190		198		4
Total United States	61		13		10		84		1,816		1,900		59
Canada	6		2		2		10		308		318		19
France	4		—		—		4		356		360		25
U.K./Ireland	1		—		—		1		225		226		—
Central⁽²⁾	1		—		1		2		292		294		8
Southern⁽³⁾	2		1		1		4		192		196		3
Nordics⁽⁴⁾	—		—		—		—		44		44		—
Total Europe	8		1		2		11		1,109		1,120		36
Other	3		—		—		3		40		43		—
Total	$	78	$	16	$	14	$	108	$	3,273	$	3,381	$	114

	December 31, 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	$	15	$	4	$	2	$	21	$	578	$	599	$	11
Government and education	17		4		3		24		501		525		24
Graphic arts	10		1		1		12		288		300		5
Industrial	5		2		1		8		176		184		5
Healthcare	4		2		1		7		136		143		5
Other	5		2		1		8		187		195		4
Total United States⁽¹⁾	56		15		9		80		1,866		1,946		54
Canada	7		2		1		10		325		335		22
France	5		—		—		5		413		418		14
U.K./Ireland	2		—		—		2		242		244		—
Central⁽²⁾	1		1		1		3		324		327		6
Southern⁽³⁾	3		1		1		5		200		205		6
Nordics⁽⁴⁾	—		—		—		—		45		45		—
Total Europe	11		2		2		15		1,224		1,239		26
Other⁽¹⁾	2		—		—		2		42		44		—
Total	$	76	$	19	$	12	$	107	$	3,457	$	3,564	$	102

_____________________________


(1)	As a result of an internal reorganization, XBS amounts, previously classified as Other, were reclassified to the U.S. in first quarter 2019. Prior year amounts have also been reclassified to conform to the current year presentation.


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

(3)Italy, Greece, Spain and Portugal.

(4)Sweden, Norway, Denmark and Finland.