Allowance for Doubtful Accounts

Deposits with and receivables from broker-dealers, clearing organizations, and counterparties, net, receivables from customers, net, and notes receivable, net include an allowance for doubtful accounts, which reflects the Company’s best estimate of probable losses inherent in the accounts. The Company provides for an allowance for doubtful accounts based on a specific-identification basis. The Company continually reviews its allowance for doubtful accounts. The allowance for doubtful accounts related to deposits with and receivables from broker-dealers, clearing organizations, and counterparties was $47.0 million and zero as of September 30, 2017 and 2016, respectively. The allowance for doubtful accounts related to receivables from customers was $7.6 million and $9.5 million as of September 30, 2017 and 2016, respectively. The allowance for doubtful accounts related to notes receivable was zero and $0.2 million as of September 30, 2017 and 2016, respectively.

During the year ended September 30, 2017, the Company recorded bad debt expense related to customers, net of recoveries, of $4.3 million, including provision increases of $4.2 million, direct write-offs of $0.1 million. The increase in bad debts during fiscal 2017 primarily related to $3.8 million of customer deficits in the Commercial Hedging segment, primarily related to account deficits from South Korean and Dubai commercial LME customers, $0.2 million of uncollectible customer receivables in the Physical Commodities segment, and $0.3 million of uncollectible customer receivables in the Clearing and Execution segment, primarily related to our derivatives voice brokerage business.

During the fourth quarter of fiscal 2017, the Company recorded a charge to earnings of $47.0 million, to record an allowance for doubtful accounts related to a bad debt incurred in the physical coal business conducted solely in INTL Asia Pte. Ltd., with a coal supplier, as further discussed in Note 2.

During the year ended September 30, 2016, the Company recorded bad debt expense related to customers, 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 related to customers, 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.

Activity in the allowance for doubtful accounts for the years ended September 30, 2017, 2016, and 2015 was as follows:



(in millions)	2017			2016			2015
Balance, beginning of year	$	9.7		$	11.2		$	5.8
Provision for bad debts	51.0			4.2			6.0
Charge-offs	(6.1		)	(5.7		)	(0.6		)
Balance, end of year	$	54.6		$	9.7		$	11.2

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 $2.1 million and $5.0 million as of September 30, 2017 and 2016, respectively. The Company has sold $2.1 million and $4.6 million of the insured portion of the notes through non-recourse participation agreements with other third parties as of September 30, 2017 and 2016, respectively. The Company has completed its exit of the majority of this activity during the year ended September 30, 2017. 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 14.