Finance Assets

Finance Receivables

Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our customers for postage and related supplies. Loan receivables are generally due each month; however, customers may rollover outstanding balances.

Finance receivables consisted of the following:



	September 30, 2013
	North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,466,556		$	446,810		$	1,913,366
Unguaranteed residual values	127,846			21,248			149,094
Unearned income	(299,700		)	(100,451		)	(400,151		)
Allowance for credit losses	(15,326		)	(7,823		)	(23,149		)
Net investment in sales-type lease receivables	1,279,376			359,784			1,639,160
Loan receivables
Loan receivables	389,828			51,455			441,283
Allowance for credit losses	(11,498		)	(1,849		)	(13,347		)
Net investment in loan receivables	378,330			49,606			427,936
Net investment in finance receivables	$	1,657,706		$	409,390		$	2,067,096

	December 31, 2012
	North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,581,711		$	461,510		$	2,043,221
Unguaranteed residual values	148,664			21,025			169,689
Unearned income	(316,030		)	(104,258		)	(420,288		)
Allowance for credit losses	(16,979		)	(8,662		)	(25,641		)
Net investment in sales-type lease receivables	1,397,366			369,615			1,766,981
Loan receivables
Loan receivables	414,960			47,293			462,253
Allowance for credit losses	(12,322		)	(2,131		)	(14,453		)
Net investment in loan receivables	402,638			45,162			447,800
Net investment in finance receivables	$	1,800,004		$	414,777		$	2,214,781

Allowance for Credit Losses and Aging of Receivables

We estimate our finance receivable risks and provide an allowance for credit losses accordingly. We evaluate the adequacy of the allowance for credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a client's ability to pay, prevailing economic conditions and our ability to manage the collateral and make adjustments to the allowance as necessary. This evaluation is inherently subjective and actual results may differ significantly from estimated reserves.

We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for unsecured loan receivables that are more than 90 days past due. We resume revenue recognition when payments reduce the account balance aging to 60 days or less past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our finance receivable credit risk is limited because of our large number of clients, small account balances for most of our clients, and geographic and industry diversification.

Activity in the allowance for credit losses for the nine months ended September 30, 2013 and 2012 was as follows:



	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2013	$	16,979		$	8,662		$	12,322		$	2,131		$	40,094
Amounts charged to expense	4,617			2,031			7,265			793			14,706
Accounts written off	(6,270		)	(2,870		)	(8,089		)	(1,075		)	(18,304		)
Balance at September 30, 2013	$	15,326		$	7,823		$	11,498		$	1,849		$	36,496

	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2012	$	28,661		$	12,039		$	20,272		$	2,458		$	63,430
Amounts charged to expense	1,171			1,489			4,069			703			7,432
Accounts written off	(12,694		)	(3,708		)	(8,864		)	(973		)	(26,239		)
Balance at September 30, 2012	$	17,138		$	9,820		$	15,477		$	2,188		$	44,623

Aging of Receivables

The aging of gross finance receivables at September 30, 2013 and December 31, 2012 was as follows:



	September 30, 2013
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
< 31 days	$	1,400,998	$	417,881	$	372,330	$	49,330	$	2,240,539
> 30 days and < 61 days	27,467		8,845		9,233		1,276		46,821
> 60 days and < 91 days	18,255		5,346		3,544		431		27,576
> 90 days and < 121 days	5,383		3,982		2,026		221		11,612
> 120 days	14,453		10,756		2,695		197		28,101
Total	$	1,466,556	$	446,810	$	389,828	$	51,455	$	2,354,649
Past due amounts > 90 days
Still accruing interest	$	5,383	$	3,982	$	—	$	—	$	9,365
Not accruing interest	14,453		10,756		4,721		418		30,348
Total	$	19,836	$	14,738	$	4,721	$	418	$	39,713



	December 31, 2012
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
< 31 days	$	1,497,797	$	435,780	$	392,108	$	45,324	$	2,371,009
> 30 days and < 61 days	37,348		9,994		12,666		1,368		61,376
> 60 days and < 91 days	24,059		5,198		4,577		285		34,119
> 90 days and < 121 days	6,665		3,327		2,319		179		12,490
> 120 days	15,842		7,211		3,290		137		26,480
Total	$	1,581,711	$	461,510	$	414,960	$	47,293	$	2,505,474
Past due amounts > 90 days
Still accruing interest	$	6,665	$	3,327	$	—	$	—	$	9,992
Not accruing interest	15,842		7,211		5,609		316		28,978
Total	$	22,507	$	10,538	$	5,609	$	316	$	38,970

Credit Quality

The extension of credit and management of credit lines to new and existing clients uses a combination of an automated credit score, where available, and a detailed manual review of the client’s financial condition and, when applicable, payment history. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes. The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.

We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We do not use a third party to score our International portfolios because the cost to do so is prohibitive, it is a localized process and there is no single credit score model that covers all countries.

The table below shows the North America portfolio at September 30, 2013 and December 31, 2012 by relative risk class (low, medium, high) based on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including the company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk, as defined by the third party, refers to the relative risk that an account in the next 12 month period may become delinquent.


•	Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial borrowers.


•	Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.


•	High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.



	September 30, 2013		December 31, 2012
Sales-type lease receivables
Low	$	1,097,080	$	1,016,413
Medium	260,434		450,432
High	53,569		43,658
Not Scored	55,473		71,208
Total	$	1,466,556	$	1,581,711
Loan receivables
Low	$	271,874	$	254,567
Medium	92,579		136,069
High	11,666		14,624
Not Scored	13,709		9,700
Total	$	389,828	$	414,960

Troubled Debt

We maintain a program for U.S. clients in our North America loan portfolio who are experiencing financial difficulties, but are able to make reduced payments over an extended period of time. Upon acceptance into the program, the client’s credit line is closed and interest accrual is suspended. There is generally no forgiveness of debt or reduction of balances owed. The balance of loans in this program, related loan loss allowance and write-offs are insignificant to the overall portfolio.

Leveraged Leases

Our investment in leveraged lease assets at September 30, 2013 and December 31, 2012 consisted of the following:



	September 30, 2013			December 31, 2012
Rental receivables	$	68,918		$	83,254
Unguaranteed residual values	13,644			14,177
Principal and interest on non-recourse loans	(41,836		)	(55,092		)
Unearned income	(5,868		)	(7,793		)
Investment in leveraged leases	34,858			34,546
Less: deferred taxes related to leveraged leases	(16,319		)	(19,372		)
Net investment in leveraged leases	$	18,539		$	15,174