Receivables

Receivables consist of the following (in thousands):


	September 30, 2022		December 31, 2021
Accounts receivable, gross	$	99,780	$	142,806
Customer rebate reserve	(8,722)		(12,267)
Cash discount reserves	(7,174)		(9,179)
Allowance for doubtful accounts	(3,214)		(3,642)
Other, principally returns and allowances reserves	(565)		(603)

Accounts receivable, net	$	80,105	$	117,115

Reserves for customer rebates and cash discounts are recorded as a reduction in revenue and netted against gross accounts receivable. Customer rebates in excess of a given customer's accounts receivable balance are classified in Accrued Expenses. Customer rebates and cash discounts are estimated based on the most likely amount principle as well as historical experience and anticipated performance. In addition, customers have the right to return product within the company’s normal terms policy, and as such, the company estimates the expected returns based on an analysis of historical experience and adjusts revenue accordingly.

During the third quarter of 2021, the company entered into an agreement with a bank to sell certain trade receivables with governmental entity customers in the Nordic region without recourse. Under ASC 860, the sale of the receivables qualify as a true sale and not a secured borrowing. No gain or loss was recorded on the sale of the receivables. Bank charges, which are recorded as interest expense attributable to the program, were immaterial for the nine months ended September 30, 2022.

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Substantially all the company’s receivables are due from health care, medical equipment providers and long-term care facilities predominantly located throughout the United States, Australia, Canada, New Zealand and Europe. A significant portion of products sold to providers, both foreign and domestic, are ultimately funded through government reimbursement programs such as Medicare and Medicaid in the U.S. As a consequence, changes in these programs can have an adverse impact on dealer liquidity and profitability.

The company's approach is to separate its receivables into good-standing and collection receivables. Good-standing

receivables are assigned to risk pools of high, medium and low. The risk pools are driven by the specifics associated with the geography of origination. Expected loss percentages are calculated and assigned to each risk pool, driven primarily by historical experience. The historical loss percentages are calculated for each risk pool and then judgmentally revised to consider current risk factors as well as consideration of the impact of forecasted events, as applicable. The expected loss percentages are then applied to receivables balances each period to determine the allowance for doubtful accounts.

In North America, excluding Canada, good-standing receivables are assigned to the low risk pool and assigned an expected loss percentage of 1.0% as these receivables are deemed to share the same risk profile and collections efforts are the same. Installment receivables in North America are characterized as collection receivables and thus reserves are based on specific analysis of each customer. In Canada, good-standing receivables are deemed low risk and assigned a loss percentage of 0.1%.

In Europe, expected losses are determined by each location in each region. Most locations have a majority of their receivables assigned to the low risk pool, which has an average expected loss percentage of 0.3%. About half of the locations have a portion of their receivables assigned as medium risk with an average expected loss percentage of 0.7%. Only a few locations have any receivables characterized as high risk and the average credit loss percentage for those locations is 2.8%. Collection risk is generally low as payment terms in certain key markets, such as Germany, are immediate and in many locations the ultimate customer is the government.

In the Asia Pacific region, receivables are characterized as low risk, which have an average expected loss percentage of 1.0%. Historical losses are low in this region where the use of credit insurance is often customary.

The movement in the trade receivables allowance for doubtful accounts was as follows (in thousands):


	Nine Months Ended September 30, 2022
Balance as of beginning of period	$	3,642
Current period provision	715
Recoveries (direct write-offs), net	(1,143)
Balance as of end of period	$	3,214

The company did not make any material changes to the assignment of receivables to the different risk pools or to the expected loss reserves in the quarter. The company is monitoring the impacts of the COVID-19 pandemic and the possibility for an impact on collections, but to date this has not materially impacted 2022.

For collections receivables, the estimated allowance for uncollectible amounts is based primarily on management’s evaluation of the financial condition of each customer. In addition, as a result of the company's financing arrangement with DLL, a third-party financing company which the company has worked with since 2000, management monitors the collection status of these contracts in accordance with the company’s limited recourse obligations and provides amounts necessary for estimated losses in the allowance for doubtful accounts and establishes reserves for specific customers as needed.

The company writes off uncollectible trade accounts receivable after such receivables are moved to collection status and legal remedies are exhausted. Refer to Concentration of Credit Risk in the notes to the condensed consolidated financial statements for a description of the financing arrangement. Long-term installment receivables are included in “Other Assets” on the condensed consolidated balance sheets.

The company has recorded a contingent liability in the amount of $393,000 related to the contingent aspect of the company's guarantee associated with its arrangement with DLL. The contingent liability is recorded applying the same expected loss model used for the trade and installment receivables recorded on the company's books. Specifically, historical loss history is used to determine the expected loss percentage, which is then adjusted judgmentally to consider other factors, as needed.

The company’s U.S. customers electing to finance their purchases can do so using DLL. Repurchased DLL receivables recorded on the books of the company represent a single portfolio segment of receivables to the independent provider channel and long-term care customers. The portfolio segment

of these receivables are distinguished by geography and credit quality. These receivables were repurchased from DLL because the customers were in default. Default with DLL is defined as a customer being delinquent by three payments.

The estimated allowance for uncollectible amounts and evaluation for both classes of installment receivables is based on the company’s quarterly review of the financial condition of each individual customer with the allowance for doubtful accounts adjusted accordingly. Installments are individually and not collectively reviewed. The company assesses the bad debt reserve levels based upon the status of the customer’s adherence to a legally negotiated payment schedule and the company’s ability to enforce judgments, liens, etc.

For purposes of granting or extending credit, the company utilizes a scoring model to generate a composite score that considers each customer’s consumer credit score and/or D&B credit rating, payment history, security collateral and time in business. Additional analysis is performed for most customers desiring credit greater than $250,000, which generally includes a detailed review of the customer’s financial statements as well as consideration of other factors such as exposure to changing reimbursement laws.

Interest income is recognized on installment receivables based on the terms of the installment agreements. Installment accounts are monitored and if a customer defaults on payments and is moved to collection, interest income is no longer recognized. Subsequent payments received once an account is put on non-accrual status are generally first applied to the principal balance and then to the interest. Accruing of interest on collection accounts would only be restarted if the account became current again.

All installment accounts are accounted for using the same methodology regardless of the duration of the installment agreements. When an account is placed in collection status, the company goes through a legal process for pursuing collection of outstanding amounts, the length of which typically approximates eighteen months. Any write-offs are made after the legal process has been completed.

Installment receivables consist of the following (in thousands):


	September 30, 2022						December 31, 2021
	Current		Long-Term		Total		Current		Long-Term		Total
Installment receivables	$	255	$	274	$	529	$	218	$	734	$	952


Allowance for doubtful accounts	—		—		—		—		—		—
Installment receivables, net	$	255	$	274	$	529	$	218	$	734	$	952

No sales of installment receivables were recorded by the company in 2022.

The movement in the installment receivables allowance for doubtful accounts was as follows (in thousands):


	Nine Months Ended September 30, 2022		Year Ended December 31, 2021
Balance as of beginning of period	$	—	$	487
Current period provision (benefit)	—		(75)
Direct write-offs charged against the allowance	—		(412)
Balance as of end of period	$	—	$	—

Installment receivables by class as of September 30, 2022 consist of the following (in thousands):


	Total Installment Receivables		Unpaid Principal Balance		Related Allowance for Doubtful Accounts		Interest Income Recognized


Asia Pacific
Non-Impaired installment receivables with no related allowance recorded	529		529		—		—
Total
Non-Impaired installment receivables with no related allowance recorded	529		529		—		—
Impaired installment receivables with a related allowance recorded	—		—		—		—
Total installment receivables	$	529	$	529	$	—	$	—

Installment receivables by class as of December 31, 2021 consist of the following (in thousands):


	Total Installment Receivables		Unpaid Principal Balance		Related Allowance for Doubtful Accounts		Interest Income Recognized


Asia Pacific
Non-impaired installment receivables with no related allowance recorded	952		952		—		—





Total installment receivables	$	952	$	952	$	—	$	—

The aging of the company’s installment receivables was as follows (in thousands):


	September 30, 2022		December 31, 2021
	Total		Asia Pacific		Total		Asia Pacific
Current	$	529	$	529	$	952	$	952
0-30 days past due	—		—		—		—
31-60 days past due	—		—		—		—
61-90 days past due	—		—		—		—
90+ days past due	—		—		—		—
	$	529	$	529	$	952	$	952