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Accounts Receivable and Finance Receivables
 12 Months Ended
Dec. 31, 2022
Receivables [Abstract]  
Accounts Receivable and Financing Receivables Accounts Receivable and Finance Receivables
Accounts Receivable
Accounts receivable is composed of the following:
(In millions)December 31,
2022		January 1,
2022
Commercial$755 $704 
U.S. Government contracts124 158 
879 862 
Allowance for credit losses(24)(24)
Total$855 $838 
Finance Receivables
Finance receivables are presented in the following table:
(In millions)December 31,
2022		January 1,
2022
Finance receivables$587 $630 
Allowance for credit losses(24)(25)
Total finance receivables, net$563 $605 
Finance receivables primarily includes loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. These loans have initial terms ranging from five years to twelve years, amortization terms ranging from eight years to fifteen years and an average balance of $1.8 million at December 31, 2022. Loans generally require the customer to pay a significant down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan.
Our finance receivables are diversified across geographic region and borrower industry. At December 31, 2022, 58% of our finance receivables were distributed internationally and 42% throughout the U.S., compared with 56% and 44%, respectively, at January 1, 2022. At December 31, 2022 and January 1, 2022, finance receivables of $73 million and $93 million, respectively, have been pledged as collateral for TFC’s debt of $28 million and $43 million, respectively.
Finance Receivable Portfolio Quality
We internally assess the quality of our finance receivables based on a number of key credit quality indicators and statistics such as delinquency, loan balance to estimated collateral value and the financial strength of individual borrowers and guarantors.  Because many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans on a quarterly basis and classify these loans into three categories based on the key credit quality indicators for the individual loan. These three categories are performing, watchlist and nonaccrual.
We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing.
We measure delinquency based on the contractual payment terms of our finance receivables.  In determining the delinquency aging category of an account, any/all principal and interest received is applied to the most past-due principal and/or interest amounts due. If a significant portion of the contractually due payment is delinquent, the entire finance receivable balance is reported in accordance with the most past-due delinquency aging category.
Finance receivables categorized based on the credit quality indicators and by delinquency aging category are summarized as follows:
(Dollars in millions)December 31,
2022		January 1,
2022
Performing$515 $536 
Watchlist26 — 
Nonaccrual46 94 
Nonaccrual as a percentage of finance receivables7.84%14.92%
Current and less than 31 days past due$579 $624 
31-60 days past due7 5 
61-90 days past due— — 
Over 90 days past due1 1 
60+ days contractual delinquency as a percentage of finance receivables0.17%0.16%
At December 31, 2022, 43% of our performing finance receivables were originated since the beginning of 2020 and 24% were originated from 2017 to 2019. For finance receivables categorized as watchlist, 94% were originated since the beginning of 2020 and for nonaccrual, 82% were originated from 2017 to 2019.
On a quarterly basis, we evaluate individual larger balance accounts for impairment.  A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified.  If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification.
A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:
(In millions)December 31,
2022		January 1,
2022
Recorded investment:
Impaired finance receivables with specific allowance for credit losses$15 $33 
Impaired finance receivables with no specific allowance for credit losses31 61 
Total$46 $94 
Unpaid principal balance$60 $109 
Allowance for credit losses on impaired finance receivables3 4 
Average recorded investment of impaired finance receivables67 117 
A summary of the allowance for credit losses on finance receivables based on how the underlying finance receivables are evaluated for impairment is provided below.  The finance receivables reported in this table exclude $91 million and $95 million of leveraged leases at December 31, 2022 and January 1, 2022, respectively, in accordance with U.S. generally accepted accounting principles.
(In millions)December 31,
2022		January 1,
2022
Allowance for credit losses based on collective evaluation$21 $21 
Allowance for credit losses based on individual evaluation3 4 
Finance receivables evaluated collectively450 441 
Finance receivables evaluated individually46 94