Receivables

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Substantially all of the company’s receivables are due from health care, medical equipment providers and long term care facilities located throughout the United States, Australia, Canada, New Zealand, China and Europe. A significant portion of products sold to providers, both foreign and domestic, are ultimately funded through government reimbursement programs such as Medicare and Medicaid in the U.S. As a consequence, changes in these programs can have an adverse impact on dealer liquidity and profitability.

The estimated allowance for uncollectible amounts ($7,346,000 at September 30, 2016 and $9,726,000 at December 31, 2015) is based primarily on management’s evaluation of the financial condition of specific customers. In addition, as a result of the company's financing arrangement with De Lage Landen, Inc. ("DLL"), a third party financing company which the company has worked with since 2000, management monitors the collection status of these contracts in accordance with the company’s limited recourse obligations and provides amounts necessary for estimated losses in the allowance for doubtful accounts and establishes reserves for specific customers as needed. The company writes off uncollectible trade accounts receivable after such receivables are moved to collection status and legal remedies are exhausted. See Concentration of Credit Risk in the Notes to the Consolidated Financial Statements for a description of the financing arrangement. Long-term installment receivables are included in “Other Assets” on the consolidated balance sheet.

The company’s U.S. customers electing to finance their purchases can do so using DLL. In addition, the company often provides financing directly for its Canadian customers for which DLL is not an option, as DLL typically provides financing to Canadian customers only on a limited basis. The installment receivables recorded on the books of the company represent a single portfolio segment of finance receivables to the independent provider channel and long-term care customers. The portfolio segment is comprised of two classes of receivables distinguished by geography and credit quality. The U.S. installment receivables are the first class and represent installment receivables re-purchased from DLL because the customers were in default. Default with DLL is defined as a customer being delinquent by three payments. The Canadian installment receivables represent the second class of installment receivables which were originally financed by the company because third party financing was not available to the HME providers. The Canadian installment receivables are typically financed for twelve months and historically have had a very low risk of default.

The estimated allowance for uncollectible amounts and evaluation for impairment for both classes of installment receivables is based on the company’s quarterly review of the financial condition of each individual customer with the allowance for doubtful accounts adjusted accordingly. Installments are individually and not collectively reviewed for impairment. The company assesses the bad debt reserve levels based upon the status of the customer’s adherence to legally negotiated payment schedule and the company’s ability to enforce judgments, liens, etc.

For purposes of granting or extending credit, the company utilizes a scoring model to generate a composite score that considers each customer’s consumer credit score and/or D&B credit rating, payment history, security collateral and time in business. Additional analysis is performed for most customers desiring credit greater than $250,000, which generally includes a detailed review of the customer’s financial statements as well as consideration of other factors such as exposure to changing reimbursement laws.

Interest income is recognized on installment receivables based on the terms of the installment agreements. Installment accounts are monitored and if a customer defaults on payments and is moved to collection, interest income is no longer recognized. Subsequent payments received once an account is put on non-accrual status are generally first applied to the principal balance and then to the interest. Accruing of interest on collection accounts would only be restarted if the account became current again.

All installment accounts are accounted for using the same methodology regardless of the duration of the installment agreements. When an account is placed in collection status, the company goes through a legal process for pursuing collection of outstanding amounts, the length of which typically approximates eighteen months. Any write-offs are made after the legal process has been completed. The company has not made any changes to either its accounting policies or methodology to estimate allowances for doubtful accounts in the last twelve months.

Installment receivables consist of the following (in thousands):



	September 30, 2016									December 31, 2015
	Current			Long- Term			Total			Current			Long- Term			Total
Installment receivables	$	2,134		$	3,166		$	5,300		$	2,309		$	2,318		$	4,627
Less: Unearned interest	(49		)	—			(49		)	(42		)	—			(42		)
	2,085			3,166			5,251			2,267			2,318			4,585
Allowance for doubtful accounts	(629		)	(2,812		)	(3,441		)	(1,122		)	(1,670		)	(2,792		)
Installment receivables, net	$	1,456		$	354		$	1,810		$	1,145		$	648		$	1,793

Installment receivables purchased from DLL during the nine months ended September 30, 2016 increased the gross installment receivables balance by $1,578,000. No sales of installment receivables were made by the company during the quarter.

The movement in the installment receivables allowance for doubtful accounts was as follows (in thousands):



	Nine Months Ended September 30, 2016			Year Ended December 31, 2015
Balance as of beginning of period	$	2,792		$	5,852
Current period provision (benefit)	1,243			(332		)
Direct write-offs charged against the allowance	(594		)	(2,728		)
Balance as of end of period	$	3,441		$	2,792

Installment receivables by class as of September 30, 2016 consist of the following (in thousands):



	Total Installment Receivables		Unpaid Principal Balance		Related Allowance for Doubtful Accounts		Interest Income Recognized
U.S.
Impaired installment receivables with a related allowance recorded	$	4,178	$	4,178	$	3,371	$	—
Canada
Non-Impaired installment receivables with no related allowance recorded	1,052		1,003		—		46
Impaired installment receivables with a related allowance recorded	70		70		70		—
Total Canadian installment receivables	1,122		1,073		70		46
Total
Non-Impaired installment receivables with no related allowance recorded	1,052		1,003		—		46
Impaired installment receivables with a related allowance recorded	4,248		4,248		3,441		—
Total installment receivables	$	5,300	$	5,251	$	3,441	$	46

Installment receivables by class as of December 31, 2015 consist of the following (in thousands):



	Total Installment Receivables		Unpaid Principal Balance		Related Allowance for Doubtful Accounts		Interest Income Recognized
U.S.
Impaired installment receivables with a related allowance recorded	$	3,618	$	3,618	$	2,729	$	—
Canada
Non-Impaired installment receivables with no related allowance recorded	946		904		—		52
Impaired installment receivables with a related allowance recorded	63		63		63		—
Total Canadian installment receivables	1,009		967		63		52
Total
Non-Impaired installment receivables with no related allowance recorded	946		904		—		52
Impaired installment receivables with a related allowance recorded	3,681		3,681		2,792		—
Total installment receivables	$	4,627	$	4,585	$	2,792	$	52

Installment receivables with a related allowance recorded as noted in the table above represent those installment receivables on a non-accrual basis in accordance with ASU 2010-20. As of September 30, 2016, the company had no U.S. installment receivables past due of 90 days or more for which the company is still accruing interest. Individually, all U.S. installment receivables are assigned a specific allowance for doubtful accounts based on management’s review when the company does not expect to receive both the contractual principal and interest payments as specified in the loan agreement. In Canada, the company had an immaterial amount of Canadian installment receivables which were past due of 90 days or more as of September 30, 2016 and December 31, 2015 for which the company is still accruing interest.

The aging of the company’s installment receivables was as follows (in thousands):



	September 30, 2016						December 31, 2015
	Total		U.S.		Canada		Total		U.S.		Canada
Current	$	1,030	$	—	$	1,030	$	908	$	—	$	908
0-30 Days Past Due	8		—		8		16		—		16
31-60 Days Past Due	3		—		3		12		—		12
61-90 Days Past Due	—		—		—		1		—		1
90+ Days Past Due	4,259		4,178		81		3,690		3,618		72
	$	5,300	$	4,178	$	1,122	$	4,627	$	3,618	$	1,009