Accounts Receivable

3 Months Ended

Mar. 28, 2020

Accounts Receivable

Accounts receivable, net, consists of the following:



	March 28, 2020			December 31, 2019
Accounts receivable	$	7,930,947		$	8,552,120
Allowances for doubtful accounts	(113,928		)	(69,433		)
	$	7,817,019		$	8,482,687

The company has notes receivable with certain customers, which are included in “Accounts receivable, net” in the company’s consolidated balance sheets.

Allowances for doubtful accounts consists of the following:



Balance at December 31, 2019	$	69,433
Effect of adoption of ASU No. 2016-13 (Note B)	47,011
Charged to income	12,539
Translation Adjustments	(1,869		)
Writeoffs	(13,186		)
Balance at March 28, 2020	$	113,928

The global economic impact from COVID-19 may adversely affect the credit condition of some of our customers. The company has considered the current credit condition of its customers in estimating the expected credit losses as of March 28, 2020. The impact of the COVID-19 on our customers credit condition is highly uncertain and will largely depend on the outcome of future events, which could result increases in credit losses.

During the first quarter of 2020, the company entered into an EMEA asset securitization program under which it will continuously sell its interest in designated pools of trade accounts receivable of certain of its subsidiaries in the EMEA region, at a discount, to a special purpose entity, which in turn sells certain of the receivables to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution on a monthly basis. The company may sell up to €400,000 under the EMEA asset securitization program, which matures in January 2023. The program is conducted through Arrow EMEA Funding Corp B.V., a bankruptcy remote entity. The company is deemed the primary beneficiary of Arrow EMEA Funding Corp B.V. as the company has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits that could potentially be significant to the entity from the transfer of the trade accounts receivable into the special purpose entity. Accordingly, Arrow EMEA Funding Corp B.V. is included in the company’s consolidated financial statements.

Receivables sold under the program are excluded from “Accounts receivable, net” on the company’s consolidated balance sheets and cash receipts are reflected as cash provided by operating activities on the consolidated statements of cash flows. The entire purchase price is paid in cash when the receivables are sold. Certain unsold receivables held on Arrow EMEA Funding Corp B.V. are pledged as collateral to the unaffiliated financial institution. These unsold receivables are included in “Accounts receivable, net” in the company’s consolidated balance sheets.

The company continues servicing the receivables sold and in exchange receives a servicing fee under the program. Servicing fees related to the EMEA securitization program are not material. The company does not record a servicing asset or liability on the company’s consolidated balance sheets as the company estimates that the fee it receives to service these receivables approximates the fair market compensation to provide the servicing activities.

During the three months ended March 28, 2020, the company sold approximately €488,721, or $528,453, of accounts receivable under the EMEA securitization program. There were €346,709, or $382,089, of receivables outstanding as of March 28, 2020. Total collateralized accounts receivable of approximately €155,212, or $170,961, were held by Arrow EMEA Funding Corp B.V. at March 28, 2020. Any accounts receivable held by Arrow EMEA Funding Corp B.V. would likely not be available to other creditors of the company in the event of bankruptcy or insolvency proceedings if there are outstanding balances under the EMEA

asset securitization program. The assets of the special purpose entity cannot be used by the company for general corporate purposes. Additionally, the financial obligations of Arrow EMEA Funding Corp B.V. to the unaffiliated financial institution under the program are limited to the assets it owns and there is no recourse to the company for receivables that are uncollectible as a result of the insolvency or inability to pay of the account debtors.

The EMEA asset securitization program includes terms and conditions that limit the incurrence of additional borrowings and require that certain financial ratios be maintained at designated levels. The company was in material compliance with all covenants as of March 28, 2020 and is currently not aware of any events that would cause non-compliance with any covenants in the future.