Financing Receivable

9 Months Ended

Sep. 30, 2019

(7) Financing Receivable

The Company has entered into agreements with customers to purchase rental equipment and to lease the equipment back to the customers on a finance lease. As control of the equipment has been retained by the customers, the Company concluded that sale-leaseback accounting was not applicable and has treated the arrangements as financing transactions. The amount paid by the Company has been recorded as a financing receivable. Payments made by the customers are recorded as a reduction to the financing receivable and as interest income, calculated using the effective interest method.

The following table summarizes the components of the Company’s financing receivable (in thousands):


		September 30,
	Financial statement caption	2019
Current	Prepaid expenses and other current assets	$	3,653
Non-current	Financing receivable		31,661
Total financing receivable		$	35,314

In order to estimate an allowance for losses from financing receivables, the Company reviews the credit worthiness of its customers on an ongoing basis. As of September 30, 2019, $34.6 million and $0.7 million of the Company’s financing receivable would be categorized as Tier 1 and Tier 2, respectively, based on the internal customer credit ratings as described in Note 6.