Note 3 – Receivables and Allowance for Credit Losses

Our portfolio of receivables is comprised of two portfolio segments, accounts receivable and EIP receivables. Our accounts receivable segment primarily consists of amounts currently due from customers, including service and leased device receivables, other carriers and third-party retail channels.

Based upon customer credit profiles, we classify the EIP receivables segment into two customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower delinquency risk and Subprime customer receivables are those with higher delinquency risk. Customers may be required to make a down payment on their equipment purchases. In addition, certain customers within the Subprime category are required to pay an advance deposit.

To determine a customer’s credit profile, we use a proprietary credit scoring model that measures the credit quality of a customer using several factors, such as credit bureau information, consumer credit risk scores and service and device plan characteristics.

The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses:



(in millions)	December 31, 2018			December 31, 2017
EIP receivables, gross	$	4,534		$	3,960
Unamortized imputed discount	(330		)	(264		)
EIP receivables, net of unamortized imputed discount	4,204			3,696
Allowance for credit losses	(119		)	(132		)
EIP receivables, net	$	4,085		$	3,564
Classified on the balance sheet as:
Equipment installment plan receivables, net	$	2,538		$	2,290
Equipment installment plan receivables due after one year, net	1,547			1,274
EIP receivables, net	$	4,085		$	3,564

To determine the appropriate level of the allowance for credit losses, we consider a number of credit quality indicators, including historical credit losses and timely payment experience as well as current collection trends such as write-off frequency and severity, aging of the receivable portfolio, credit quality of the customer base and other qualitative factors such as macro-economic conditions.

We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on customer credit quality and the aging of the receivable.

For EIP receivables, subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.

The EIP receivables had weighted average effective imputed interest rates of 10.0%, 9.6% and 9.0% as of December 31, 2018, 2017 and 2016, respectively.

Activity for the years ended December 31, 2018, 2017 and 2016 in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows:



	December 31, 2018									December 31, 2017									December 31, 2016
(in millions)	Accounts Receivable Allowance			EIP Receivables Allowance			Total			Accounts Receivable Allowance			EIP Receivables Allowance			Total			Accounts Receivable Allowance			EIP Receivables Allowance			Total
Allowance for credit losses and imputed discount, beginning of period	$	86		$	396		$	482		$	102		$	316		$	418		$	116		$	333		$	449
Bad debt expense	69			228			297			104			284			388			227			250			477
Write-offs, net of recoveries	(88		)	(240		)	(328		)	(120		)	(273		)	(393		)	(241		)	(277		)	(518		)
Change in imputed discount on short-term and long-term EIP receivables	N/A			250			250			N/A			252			252			N/A			186			186
Impact on the imputed discount from sales of EIP receivables	N/A			(185		)	(185		)	N/A			(183		)	(183		)	N/A			(176		)	(176		)
Allowance for credit losses and imputed discount, end of period	$	67		$	449		$	516		$	86		$	396		$	482		$	102		$	316		$	418

Management considers the aging of receivables to be an important credit indicator. The following table provides delinquency status for the unpaid principal balance for receivables within the EIP portfolio segment, which we actively monitor as part of our current credit risk management practices and policies:



	December 31, 2018						December 31, 2017
(in millions)	Prime		Subprime		Total EIP Receivables, gross		Prime		Subprime		Total EIP Receivables, gross
Current - 30 days past due	$	1,987	$	2,446	$	4,433	$	1,727	$	2,133	$	3,860
31 - 60 days past due	15		32		47		17		29		46
61 - 90 days past due	6		19		25		6		16		22
More than 90 days past due	7		22		29		8		24		32
Total receivables, gross	$	2,015	$	2,519	$	4,534	$	1,758	$	2,202	$	3,960