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 supplies. Loan receivables are generally due each month; however, customers may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method and related annual fees are initially deferred and recognized ratably over the annual period covered. Customer acquisition costs are expensed as incurred. During the second quarter of 2016, we determined that certain finance receivables with a net investment of $35 million at December 31, 2015 classified as a sales type lease receivable should have been classified as loan receivables. Accordingly, prior period amounts have been revised to reflect this change.

Finance receivables at September 30, 2016 and December 31, 2015 consisted of the following:



	September 30, 2016									December 31, 2015
	North America			International			Total			North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,083,873		$	287,519		$	1,371,392		$	1,157,189		$	303,854		$	1,461,043
Unguaranteed residual values	95,618			14,701			110,319			100,000			15,709			115,709
Unearned income	(228,709		)	(63,599		)	(292,308		)	(247,854		)	(68,965		)	(316,819		)
Allowance for credit losses	(6,054		)	(2,587		)	(8,641		)	(6,606		)	(3,542		)	(10,148		)
Net investment in sales-type lease receivables	944,728			236,034			1,180,762			1,002,729			247,056			1,249,785
Loan receivables
Loan receivables	365,725			37,547			403,272			399,193			41,604			440,797
Allowance for credit losses	(8,288		)	(1,196		)	(9,484		)	(10,024		)	(1,518		)	(11,542		)
Net investment in loan receivables	357,437			36,351			393,788			389,169			40,086			429,255
Net investment in finance receivables	$	1,302,165		$	272,385		$	1,574,550		$	1,391,898		$	287,142		$	1,679,040

Allowance for Credit Losses

We provide an allowance for probable 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. We continually evaluate the adequacy of the allowance for credit losses and make adjustments as necessary. The assumptions used in determining an estimate of credit losses are 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 loan receivables that are more than 90 days past due. We resume revenue recognition when the client's payments reduce the account aging to less than 60 days 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 low because of the geographic and industry diversification of our clients and small account balances for most of our clients.

Activity in the allowance for credit losses for the nine months ended September 30, 2016 and 2015 was as follows:



	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2016	$	6,606		$	3,542		$	10,024		$	1,518		$	21,690
Amounts charged to expense	2,881			464			4,217			688			8,250
Write-offs and other	(3,433		)	(1,419		)	(5,953		)	(1,010		)	(11,815		)
Balance at September 30, 2016	$	6,054		$	2,587		$	8,288		$	1,196		$	18,125

	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2015	$	10,125		$	5,024		$	11,068		$	1,788		$	28,005
Amounts charged to expense	793			183			6,180			867			8,023
Write-offs and other	(3,523		)	(1,711		)	(7,260		)	(1,005		)	(13,499		)
Balance at September 30, 2015	$	7,395		$	3,496		$	9,988		$	1,650		$	22,529

Aging of Receivables

The aging of gross finance receivables at September 30, 2016 and December 31, 2015 was as follows:



	September 30, 2016
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
1 - 90 days	$	1,017,772	$	282,269	$	361,883	$	37,251	$	1,699,175
> 90 days	66,101		5,250		3,842		296		75,489
Total	$	1,083,873	$	287,519	$	365,725	$	37,547	$	1,774,664
Past due amounts > 90 days
Still accruing interest	$	10,447	$	1,748	$	—	$	—	$	12,195
Not accruing interest	55,654		3,502		3,842		296		63,294
Total	$	66,101	$	5,250	$	3,842	$	296	$	75,489

As of September 30, 2016, we had North America sales-type lease receivables aged greater than 90 days with a contract value of $66 million. As of October 30, 2016, we have received payments with a contract value of approximately $30 million related to these receivables.



	December 31, 2015
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
1 - 90 days	$	1,138,031	$	298,772	$	395,573	$	41,117	$	1,873,493
> 90 days	19,158		5,082		3,620		487		28,347
Total	$	1,157,189	$	303,854	$	399,193	$	41,604	$	1,901,840
Past due amounts > 90 days
Still accruing interest	$	5,041	$	1,617	$	—	$	—	$	6,658
Not accruing interest	14,117		3,465		3,620		487		21,689
Total	$	19,158	$	5,082	$	3,620	$	487	$	28,347

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 portfolio because the cost to do so is prohibitive, given that 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, 2016 and December 31, 2015 by relative risk class 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 (low, medium, high), 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, 2016		December 31, 2015
Sales-type lease receivables
Low	$	824,756	$	886,198
Medium	172,278		192,645
High	19,339		37,573
Not Scored	67,500		40,773
Total	$	1,083,873	$	1,157,189
Loan receivables
Low	$	278,210	$	295,725
Medium	70,052		85,671
High	6,648		10,810
Not Scored	10,815		6,987
Total	$	365,725	$	399,193