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 $9.5 million and $10.2 million as of September 30, 2016 and 2015, respectively. The allowance for doubtful accounts related to notes receivable was $0.2 million and $1.0 million as of September 30, 2016 and 2015, respectively.

During the year ended September 30, 2016, the Company recorded bad debt expense, net of recoveries, of $4.4 million, including provision increases of$4.2 million and direct write-offs of $0.4 million, offset by recoveries of $0.2 million. The increase in bad debts during fiscal 2016 primarily related to $3.6 million of customer deficits in the Commercial Hedging segment, $0.4 million of uncollectible customer receivables in the Physical Commodities segment and $0.4 million of uncollectible service fees and notes in the Securities segment.

During the year ended September 30, 2015, the Company recorded bad debt expense, net of recoveries, of $7.3 million, including provision increases of $6.6 million and direct write-offs of $0.7 million, offset by minimal recoveries. The increase in bad debts during fiscal 2015 related to $2.8 million of receivables from a renewable fuels customer in the Physical Commodities segment, $2.3 million of OTC customer deficits and $0.6 million of LME customer deficits in the Commercial Hedging segment, $0.5 million of uncollectible service fees and notes in our Securities segment, and $1.1 million of notes receivable related to loans pertaining to a former acquisition.

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 & 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.

Activity in the allowance for doubtful accounts and notes for the years ended September 30, 2016, 2015, and 2014 was as follows:



(in millions)	2016			2015			2014
Balance, beginning of year	$	11.2		$	5.8		$	1.2
Provision for bad debts	4.2			6.0			5.3
Deductions:
Charge-offs	(5.7		)	(0.6		)	(0.7		)
Balance, end of year	$	9.7		$	11.2		$	5.8

The Company originates short-term notes receivable from customers with the outstanding balances typically being insured 90% to 98% by a third party, including accrued interest, subject to applicable deductible amounts. The total balance outstanding under insured notes receivable was $5.0 million and $41.4 million as of September 30, 2016 and 2015, respectively. The Company has sold $4.6 million and $30.7 million of the insured portion of the notes through non-recourse participation agreements with other third parties as of September 30, 2016 and 2015, respectively. The Company has completed its exit of the majority of this activity during the year ended September 30, 2016. The Company believes the run-off of the remaining activity will have a minimal impact on the Company.

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