Financing Receivables and Operating Leases

Financing receivables represent sales-type and direct-financing leases of the Company and third-party products. These receivables typically have terms ranging from two to five years and are usually collateralized by a security interest in the underlying assets. Financing receivables also include billed receivables from operating leases. The components of financing receivables were as follows:



	As of
	January 31, 2017			October 31, 2016
	In millions
Minimum lease payments receivable	$	7,158		$	7,293
Unguaranteed residual value	235			231
Unearned income	(576		)	(574		)
Financing receivables, gross	6,817			6,950
Allowance for doubtful accounts	(84		)	(89		)
Financing receivables, net	6,733			6,861
Less: current portion⁽¹⁾	(2,922		)	(2,923		)
Amounts due after one year, net⁽¹⁾	$	3,811		$	3,938


(1)	The Company includes the current portion in Financing receivables, and amounts due after one year, net in Long-term financing receivables and other assets, in the accompanying Condensed Consolidated Balance Sheets.

Credit Quality Indicators

Due to the homogeneous nature of its leasing transactions, the Company manages its financing receivables on an aggregate basis when assessing and monitoring credit risk. Credit risk is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and geographic regions. The Company evaluates the credit quality of an obligor at lease inception and monitors that credit quality over the term of a transaction. The Company assigns risk ratings to each lease based on the creditworthiness of the obligor and other variables that augment or mitigate the inherent credit risk of a particular transaction. Such variables include the underlying value and liquidity of the collateral, the essential use of the equipment, the term of the lease, and the inclusion of credit enhancements, such as guarantees, letters of credit or security deposits.

The credit risk profile of gross financing receivables, based upon internal risk ratings, was as follows:



	As of
	January 31, 2017		October 31, 2016
	In millions
Risk Rating:
Low	$	3,378	$	3,484
Moderate	3,355		3,382
High	84		84
Total	$	6,817	$	6,950

Accounts rated low risk typically have the equivalent of a Standard & Poor's rating of BBB– or higher, while accounts rated moderate risk generally have the equivalent of BB+ or lower. The Company classifies accounts as high risk when it considers the financing receivable to be impaired or when management believes there is a significant near-term risk of impairment.

Allowance for Doubtful Accounts

The allowance for doubtful accounts for financing receivables is comprised of a general reserve and a specific reserve. The Company maintains general reserve percentages on a regional basis and bases such percentages on several factors, including consideration of historical credit losses and portfolio delinquencies, trends in the overall weighted-average risk rating of the portfolio, current economic conditions and information derived from competitive benchmarking. The Company excludes accounts evaluated as part of the specific reserve from the general reserve analysis. The Company establishes a specific reserve for financing receivables with identified exposures, such as customer defaults, bankruptcy or other events, that make it unlikely the Company will recover its investment. For individually evaluated receivables, the Company determines the expected cash flow for the receivable, which includes consideration of estimated proceeds from disposition of the collateral, and calculates an estimate of the potential loss and the probability of loss. For those accounts where a loss is considered probable, the Company records a specific reserve. The Company generally writes off a receivable or records a specific reserve when a receivable becomes 180 days past due, or sooner if the Company determines that the receivable is not collectible.

The allowance for doubtful accounts for financing receivables as of January 31, 2017 and October 31, 2016 and the respective changes during the three and twelve months then ended were as follows:



	As of
	January 31, 2017			October 31, 2016
	In millions
Balance at beginning of period	$	89		$	95
Provision for doubtful accounts	2			11
Write-offs	(7		)	(17		)
Balance at end of period	$	84		$	89

The gross financing receivables and related allowance evaluated for loss were as follows:



	As of
	January 31, 2017		October 31, 2016
	In millions
Gross financing receivables collectively evaluated for loss	$	6,546	$	6,667
Gross financing receivables individually evaluated for loss	271		283
Total	$	6,817	$	6,950
Allowance for financing receivables collectively evaluated for loss	$	66	$	73
Allowance for financing receivables individually evaluated for loss	18		16
Total	$	84	$	89

Non-Accrual and Past-Due Financing Receivables

The Company considers a financing receivable to be past due when the minimum payment is not received by the contractually specified due date. The Company generally places financing receivables on non-accrual status, which is the suspension of interest accrual, and considers such receivables to be non-performing at the earlier of the time at which full payment of principal and interest becomes doubtful or the receivable becomes 90 days past due. Subsequently, the Company may recognize revenue on non-accrual financing receivables as payments are received, which is on a cash basis, if the Company deems the recorded financing receivable to be fully collectible; however, if there is doubt regarding the ultimate collectability of the recorded financing receivable, all cash receipts are applied to the carrying amount of the financing receivable, which is the cost recovery method. In certain circumstances, such as when the Company deems a delinquency to be of an administrative nature, financing receivables may accrue interest after becoming 90 days past due. The non-accrual status of a financing receivable may not impact a customer's risk rating. After all of a customer's delinquent principal and interest balances are settled, the Company may return the related financing receivable to accrual status.

The following table summarizes the aging and non-accrual status of gross financing receivables:



	As of
	January 31, 2017		October 31, 2016
	In millions
Billed:⁽¹⁾
Current 1-30 days	$	302	$	337
Past due 31-60 days	47		47
Past due 61-90 days	23		12
Past due > 90 days	63		59
Unbilled sales-type and direct-financing lease receivables	6,382		6,495
Total gross financing receivables	$	6,817	$	6,950
Gross financing receivables on non-accrual status⁽²⁾	$	180	$	163
Gross financing receivables 90 days past due and still accruing interest⁽²⁾	$	91	$	120


(1)	Includes billed operating lease receivables and billed sales-type and direct-financing lease receivables.


(2)	Includes billed operating lease receivables and billed and unbilled sales-type and direct-financing lease receivables.

Operating Leases

Operating lease assets included in machinery and equipment in the Condensed Consolidated Balance Sheets were as follows:



	As of
	January 31, 2017			October 31, 2016
	In millions
Equipment leased to customers	$	5,481		$	5,467
Accumulated depreciation	(2,176		)	(2,134		)
Total	$	3,305		$	3,333