Receivables From Customers, Net and Notes Receivable, Net

Receivables from customers, net and notes receivable, net include an allowance for bad debts, which reflects the Company’s best estimate of probable losses inherent in the receivables from customers and notes receivable. The Company provides for an allowance for doubtful accounts based on a specific-identification basis. The Company continually reviews its allowance for bad debts. The allowance for doubtful accounts related to receivables from customers was $5.7 million and $1.1 million as of September 30, 2014 and 2013, respectively. The allowance for doubtful accounts related to notes receivable was $0.1 million as of September 30, 2014 and 2013.

During the year ended September 30, 2014, the Company recorded bad debt expense, net of recoveries, of $5.5 million, including provision increases of $5.1 million and direct write-offs of $0.6 million, offset by recoveries of $0.2 million. The provision increases during fiscal 2014 was $3.8 million in the Commercial Hedging segment, primarily related to account deficits from a Hong Kong commercial LME customer and Brazilian OTC Financial Ag’s & Energy customers. Additionally, the Company recorded bad debts of $0.9 million in the Physical Commodities segment, related to renewable fuels activity, and $0.7 million in the Securities segment primarily related to charge-offs of uncollectible service fees.

During the year ended September 30, 2013, the Company recorded bad debt expense, net of recoveries, of $0.7 million, including provision increases of $0.2 million and direct write-offs of $0.6 million, offset by recoveries of $0.1 million. The provision increase during fiscal 2013 was primarily related to customer deficits in the Commercial Hedging segment, and the direct write-offs were primarily related to investment banking advisory services in the Securities segment.

During the year ended September 30, 2012, the Company recorded bad debt expense, net of recoveries, of $0.7 million, including provision increases of $0.5 million and direct write-offs of $0.3 million, offset by recoveries of $0.1 million. The provision increase during fiscal 2012 was primarily related to customer deficits in the Commercial Hedging segment. During fiscal 2012, the Company charged-off receivables on consigned gold transactions of $8.5 million and CES customer deficits of $2.7 million, which were fully reserved.

Activity in the allowance for doubtful accounts and notes for the years ended September 30, 2014, 2013 and 2012 was as follows:



(in millions)	2014			2013		2012
Balance, beginning of year	$	1.2		$	1.0	$	11.9
Provision for bad debts	5.3			0.2		0.4
Deductions:
Charge-offs	(0.7		)	—		(11.2		)
Recoveries	—			—		(0.1		)
Balance, end of year	$	5.8		$	1.2	$	1.0

The Company originates short-term notes receivable from customers with the outstanding balances being insured 90% to 98% by a third party, including accrued interest. The total balance outstanding under insured notes receivable was $33.8 million and $21.1 million as of September 30, 2014 and 2013, respectively. The Company has sold $25.8 million and $18.7 million of the insured portion of the notes through non-recourse participation agreements with other third parties as of September 30, 2014 and 2013, respectively.

See discussion of notes receivable related to commodity repurchase agreements in Note 13.