XML 32 R18.htm IDEA: XBRL DOCUMENT v3.24.1.u1
Accounts Receivable, Net
 3 Months Ended
Mar. 31, 2024
Receivables [Abstract]  
Accounts Receivable, Net Accounts Receivable, Net
Accounts receivable, net were as follows:
March 31,
2024		December 31,
2023
Invoiced$715 $710 
Accrued(1)
196 204 
Allowance for doubtful accounts(65)(64)
Accounts receivable, net$846 $850 
_____________
(1)Accrued receivables include amounts to be invoiced in the subsequent quarter for current services provided.
The allowance for doubtful accounts was as follows:
20242023
Balance at January 1st
$64 $52 
Provision6 3 
Charge-offs(3)(5)
Recoveries and other(1)
(2)3 
Balance at March 31st
$65 $53 
_____________
(1)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.
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 based on an assessment of past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends. Based on that assessment the allowance for doubtful accounts as a percent of gross accounts receivable was 7.1% at March 31, 2024 and 7.0% at December 31, 2023.
Accounts Receivable Sales Arrangements
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.
Accounts receivable sales activity was as follows:
 Three Months Ended
March 31,
 20242023
Accounts receivable sales(1)
$91 $86 
____________
(1)Losses on sales were not material.
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.
Finance receivables, net were as follows:
 March 31,
2024		December 31,
2023
Gross receivables$2,602 $2,899 
Unearned income(256)(297)
Subtotal2,346 2,602 
Residual values— — 
Allowance for doubtful accounts(88)(92)
Finance receivables, net2,258 2,510 
Less: Billed portion of finance receivables, net67 71 
Less: Current portion of finance receivables not billed, net783 842 
Finance receivables due after one year, net$1,408 $1,597 
Finance Receivables – Allowance for Credit Losses and Credit Quality
Our finance receivable portfolios are primarily in the U.S., Canada and EMEA. We generally establish customer credit limits and estimate the allowance for credit losses on a country or geographic basis. Customer credit limits are based upon an initial evaluation of the customer's credit quality, and we adjust that limit accordingly based upon ongoing credit assessments of the customer, including payment history and changes in credit quality.
The allowance for doubtful credit losses is principally determined based on an assessment of origination year and past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends. Based on that assessment, the allowance for doubtful credit losses as a percentage of gross finance receivables (net of unearned income) was 3.8% at March 31, 2024 and 3.5% at December 31, 2023. Our finance receivable bad debt provision in the first quarter 2023 was a credit of $12 primarily related to a reserve release in the U.S. due to the favorable reassessment of the credit exposure on a large customer receivable balance after a contract amendment, which improved our credit position.
Our allowance for doubtful finance receivables is effectively determined by geography. The risk characteristics in our finance receivable portfolio segments are generally consistent with the risk factors associated with the economies of the countries/regions included in those geographies. Since EMEA is comprised of various countries and regional economies, the risk profile within that portfolio segment is somewhat more diversified due to the varying economic conditions among and within the countries.
In determining the level of reserve required we critically assessed current and forecasted economic conditions and trends to ensure we objectively considered those expected impacts in the determination of our reserve. Our assessment also included a review of current portfolio credit metrics and the level of write-offs incurred over the past year. We believe our current reserve position remains sufficient to cover expected future losses that may result from current and future macro-economic conditions including higher inflation, interest rates, and the potential for recessions in the geographic areas of our customers. We continue to monitor developments in future economic conditions and trends, and as a result, our reserves may need to be updated in future periods.
The allowance for doubtful accounts as well as the related investment in finance receivables were as follows:
United StatesCanadaEMEATotal
Balance at December 31, 2023
$58 $7 $27 $92 
Provision(3)5 6 8 
Charge-offs(7)(1)(4)(12)
Recoveries and other(1)
1 — (1)— 
Balance at March 31, 2024$49 $11 $28 $88 
Balance at December 31, 2022
$83 $7 $27 $117 
Provision(15)— 3 (12)
Charge-offs(5)— (2)(7)
Recoveries and other(1)
2 — 1 3 
Balance at March 31, 2023$65 $7 $29 $101 
Finance receivables collectively evaluated for impairment (3)
March 31, 2024(2)
$1,035 $243 $1,068 $2,346 
March 31, 2023(2)
$1,756 $233 $1,092 $3,081 
_____________
(1)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.
(2)Total Finance receivables exclude the allowance for credit losses of $88 and $101 at March 31, 2024 and 2023, respectively.
In the U.S., customers are further evaluated by class based on the type of lease origination. The primary categories are direct, which primarily includes leases originated directly with end-user customers through bundled lease arrangements, and indirect, which primarily includes leases originated through our XBS sales channel and lease financing to end-user customers who purchased equipment we sold to distributors or resellers.
We evaluate our customers based on the following credit quality indicators:
•Low Credit Risk: 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. Loss rates in this category in the normal course are generally less than 1%.
•Average Credit Risk: This rating includes accounts with average credit risk that are more susceptible to loss in the event of adverse business or economic conditions. 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 in the normal course are generally in the range of 2% to 5%.
•High Credit Risk: 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 low and average credit risk 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 in the normal course are generally in the range of 7% to 10%.
Credit quality indicators are updated at least annually, or more frequently to the extent required by economic conditions, and the credit quality of any given customer can change during the life of the portfolio.
Details about our finance receivables portfolio based on geography, origination year and credit quality indicators are as follows:
 March 31, 2024
 20242023202220212020PriorTotal
Finance
Receivables
United States (Direct)
Low Credit Risk$40 $81 $46 $51 $34 $12 $264 
Average Credit Risk24 79 32 44 19 8 206 
High Credit Risk9 30 31 21 16 6 113 
Total $73 $190 $109 $116 $69 $26 $583 
Charge-offs$— $— $— $— $— $1 $1 
United States (Indirect)
Low Credit Risk$19 $103 $57 $34 $14 $3 $230 
Average Credit Risk16 88 53 30 10 2 199 
High Credit Risk1 10 6 4 2 — 23 
Total$36 $201 $116 $68 $26 $5 $452 
Charge-offs$— $2 $2 $1 $— $1 $6 
Canada
Low Credit Risk$8 $40 $22 $13 $7 $3 $93 
Average Credit Risk9 59 32 16 10 4 130 
High Credit Risk2 6 4 3 4 1 20 
Total$19 $105 $58 $32 $21 $8 $243 
Charge-offs$— $— $1 $— $— $— $1 
EMEA
Low Credit Risk$37 $232 $163 $92 $38 $16 $578 
Average Credit Risk26 177 131 61 28 13 436 
High Credit Risk3 18 16 10 5 2 54 
Total$66 $427 $310 $163 $71 $31 $1,068 
Charge-offs$1 $2 $1 $— $— $— $4 
Total Finance Receivables
Low Credit Risk$104 $456 $288 $190 $93 $34 $1,165 
Average Credit Risk75 403 248 151 67 27 971 
High Credit Risk15 64 57 38 27 9 210 
Total$194 $923 $593 $379 $187 $70 $2,346 
Total Charge-offs$1 $4 $4 $1 $— $2 $12 
 December 31, 2023
 20232022202120202019PriorTotal
Finance
Receivables
United States (Direct)
Low Credit Risk$122 $51 $61 $43 $17 $3 $297 
Average Credit Risk104 35 49 23 9 2 222 
High Credit Risk34 36 25 22 6 3 126 
Total $260 $122 $135 $88 $32 $8 $645 
Charge-offs$1 $1 $1 $1 $1 $2 $7 
United States (Indirect)
Low Credit Risk$136 $77 $48 $22 $6 $— $289 
Average Credit Risk111 69 41 15 6 — 242 
High Credit Risk12 8 6 2 1 — 29 
Total$259 $154 $95 $39 $13 $— $560 
Charge-offs$4 $3 $3 $2 $2 $3 $17 
Canada
Low Credit Risk$45 $24 $16 $9 $4 $— $98 
Average Credit Risk63 36 18 12 6 — 135 
High Credit Risk6 5 4 5 1 1 22 
Total$114 $65 $38 $26 $11 $1 $255 
Charge-offs$— $— $— $2 $— $1 $3 
EMEA
Low Credit Risk$251 $182 $110 $48 $19 $6 $616 
Average Credit Risk192 148 73 36 17 3 469 
High Credit Risk19 16 11 7 4 — 57 
Total$462 $346 $194 $91 $40 $9 $1,142 
Charge-offs$3 $8 $4 $2 $— $— $17 
Total Finance Receivables
Low Credit Risk$554 $334 $235 $122 $46 $9 $1,300 
Average Credit Risk470 288 181 86 38 5 1,068 
High Credit Risk71 65 46 36 12 4 234 
Total$1,095 $687 $462 $244 $96 $18 $2,602 
Total Charge-offs$8 $12 $8 $7 $3 $6 $44 
The aging of our receivables portfolio is based upon the number of days an invoice is past due. Receivables that are more than 90 days past due are considered delinquent. Receivable losses are charged against the allowance when management believes the uncollectibility of the receivable is confirmed and is generally based on individual credit evaluations, results of collection efforts and specific circumstances of the customer. Subsequent recoveries, if any, are credited to the allowance.
We generally continue to maintain equipment on lease and provide services to customers that have invoices for finance receivables that are 90 days or more past due and, as a result of the bundled nature of billings, we also continue to accrue interest on those receivables. However, interest revenue for such billings is only recognized if collectability is deemed probable.
The aging of our billed finance receivables is as follows:
 March 31, 2024
 Current
31-90
Days
Past Due
>90 Days
Past Due
Total BilledUnbilled
Total
Finance
Receivables
>90 Days
and
Accruing
Direct $24 $5 $5 $34 $549 $583 $41 
Indirect11 3 2 16 436 452 — 
Total United States35 8 7 50 985 1,035 41 
Canada5 2 1 8 235 243 14 
EMEA(1)
8 2 1 11 1,057 1,068 10 
Total$48 $12 $9 $69 $2,277 $2,346 $65 
 December 31, 2023
 Current
31-90
Days
Past Due
>90 Days
Past Due
Total BilledUnbilled
Total
Finance
Receivables
>90 Days
and
Accruing
Direct$24 $6 $5 $35 $610 $645 $41 
Indirect16 3 3 22 538 560 — 
Total United States40 9 8 57 1,148 1,205 41 
Canada6 1 1 8 247 255 10 
EMEA(1)
7 2 1 10 1,132 1,142 10 
Total$53 $12 $10 $75 $2,527 $2,602 $61 
_____________
(1)Includes developing market countries.
Sales of Receivables
The Company has expanded the finance receivables funding agreement with an affiliate of HPS Investment Partners (HPS) pursuant to which the Company agreed to offer for sale, and HPS agreed to purchase, certain eligible pools of finance receivables, on a monthly basis, in transactions structured as "true sales at law," and bankruptcy remote transfers. We have received an opinion to that effect from outside legal counsel. Accordingly, the receivables sold are derecognized from our financial statements and HPS does not have recourse back to the Company for uncollectible receivables. In addition, the agreement provides for the sale of the underlying leased equipment to HPS, with the commission paid by HPS covering the value associated with the underlying equipment being sold to HPS. The Company retains a first right of refusal to repurchase the underlying equipment at the end of the lease term, to the extent offered for sale by HPS, at its then fair value.
In January of 2024, we entered into a new agreement with HPS to transfer servicing of the majority of funding activity to HPS as well as extend the existing term to 5 years. This agreement automatically renews for a one year period unless terminated by either the Company or HPS. Xerox will be required to pay a specified fee to service the Company’s retained receivables. For the remaining funding activity, Xerox will continue to service the lease receivables for a specified fee.
Finance receivable sales activity was as follows:
Three Months Ended
March 31,
 20242023
Finance receivable sales - net proceeds(1)
$185 $261 
Gain on sale/Commissions(2)(3)
6 2 
Servicing revenue(2)
$2 $1 
_____________
(1)Cash proceeds were reported in Net cash provided by operating activities.
(2)Recorded in Services, maintenance and rentals as Other Revenue. Amounts include revenues associated with the sale of the underlying leased equipment.
(3)Revenues associated with the sale of the underlying leased equipment, which are expected to be paid over the term of the agreements were not material for the three months ended March 31, 2024 and 2023, respectively.
Secured Borrowings and Collateral
In 2022 and 2021, we sold certain finance receivables to consolidated special purpose entities included in our Condensed Consolidated Balance Sheet as collateral for secured loans.
Refer to Note 13 - Debt for additional information related to these arrangements.