Finance Assets

Finance Receivables

Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our customers for postage and related supplies. Loan receivables are generally due each month; however, customers may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method and related annual fees are initially deferred and recognized ratably over the annual period covered. Customer acquisition costs are expensed as incurred.

Finance receivables at September 30, 2014 and December 31, 2013 consisted of the following:



	September 30, 2014
	North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,291,312		$	385,037		$	1,676,349
Unguaranteed residual values	106,940			19,324			126,264
Unearned income	(272,035		)	(87,954		)	(359,989		)
Allowance for credit losses	(12,906		)	(5,486		)	(18,392		)
Net investment in sales-type lease receivables	1,113,311			310,921			1,424,232
Loan receivables
Loan receivables	385,919			51,525			437,444
Allowance for credit losses	(10,944		)	(1,901		)	(12,845		)
Net investment in loan receivables	374,975			49,624			424,599
Net investment in finance receivables	$	1,488,286		$	360,545		$	1,848,831

	December 31, 2013
	North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,456,420		$	456,759		$	1,913,179
Unguaranteed residual values	121,339			21,553			142,892
Unearned income	(299,396		)	(101,311		)	(400,707		)
Allowance for credit losses	(14,165		)	(9,703		)	(23,868		)
Net investment in sales-type lease receivables	1,264,198			367,298			1,631,496
Loan receivables
Loan receivables	397,815			49,054			446,869
Allowance for credit losses	(11,165		)	(1,916		)	(13,081		)
Net investment in loan receivables	386,650			47,138			433,788
Net investment in finance receivables	$	1,650,848		$	414,436		$	2,065,284

Finance receivables with a net investment of $62 million were included in the sale of DIS in April 2014.

Allowance for Credit Losses and Aging of Receivables

We estimate our finance receivable risks and provide an allowance for credit losses accordingly. We evaluate the adequacy of the allowance for credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a client's ability to pay, prevailing economic conditions and our ability to manage the collateral and make adjustments to the allowance as necessary. This evaluation is inherently subjective and actual results may differ significantly from estimated reserves.

We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for unsecured loan receivables that are more than 90 days past due. We resume revenue recognition when payments reduce the account balance aging to 60 days or less past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our finance receivable credit risk is limited because of our large number of clients, small account balances for most of our clients, and geographic and industry diversification.

Activity in the allowance for credit losses for the nine months ended September 30, 2014 and 2013 was as follows:



	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2014	$	14,165		$	9,703		$	11,165		$	1,916		$	36,949
Amounts charged to expense	3,232			35			7,759			1,366			12,392
Write-offs and other	(4,491		)	(4,252		)	(7,980		)	(1,381		)	(18,104		)
Balance at September 30, 2014	$	12,906		$	5,486		$	10,944		$	1,901		$	31,237

	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2013	$	16,979		$	8,662		$	12,322		$	2,131		$	40,094
Amounts charged to expense	4,617			2,031			7,265			793			14,706
Write-offs and other	(6,270		)	(2,870		)	(8,089		)	(1,075		)	(18,304		)
Balance at September 30, 2013	$	15,326		$	7,823		$	11,498		$	1,849		$	36,496

Aging of Receivables

The aging of gross finance receivables at September 30, 2014 and December 31, 2013 was as follows:



	September 30, 2014
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
1 - 30 days	$	1,226,023	$	362,131	$	369,148	$	49,688	$	2,006,990
31 - 60 days	25,851		6,045		9,079		1,077		42,052
61 - 90 days	16,857		4,866		3,410		425		25,558
> 90 days	22,581		11,995		4,282		335		39,193
Total	$	1,291,312	$	385,037	$	385,919	$	51,525	$	2,113,793
Past due amounts > 90 days
Still accruing interest	$	5,541	$	3,501	$	—	$	—	$	9,042
Not accruing interest	17,040		8,494		4,282		335		30,151
Total	$	22,581	$	11,995	$	4,282	$	335	$	39,193



	December 31, 2013
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
1 - 30 days	$	1,383,253	$	425,923	$	379,502	$	42,573	$	2,231,251
31 - 60 days	32,102		11,760		10,464		4,391		58,717
61 - 90 days	20,830		5,724		3,330		1,363		31,247
> 90 days	20,235		13,352		4,519		727		38,833
Total	$	1,456,420	$	456,759	$	397,815	$	49,054	$	2,360,048
Past due amounts > 90 days
Still accruing interest	$	6,413	$	3,979	$	—	$	—	$	10,392
Not accruing interest	13,822		9,373		4,519		727		28,441
Total	$	20,235	$	13,352	$	4,519	$	727	$	38,833

Credit Quality

In extending and managing credit lines to new and existing clients, we use a combination of an automated credit score, where available, and a detailed manual review of the client’s financial condition and, when applicable, payment history. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes. The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.

We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We do not use a third party to score our International portfolio because the cost to do so is prohibitive, it is a localized process and there is no single credit score model that covers all countries.

The table below shows the North America portfolio at September 30, 2014 and December 31, 2013 by relative risk class (low, medium, high) based on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including the company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk, as defined by the third party, refers to the relative risk that an account in the next 12 month period may become delinquent.


•	Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial borrowers.


•	Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.


•	High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.



	September 30, 2014		December 31, 2013
Sales-type lease receivables
Low	$	976,711	$	1,081,853
Medium	212,695		244,379
High	45,206		51,851
Not Scored	56,700		78,337
Total	$	1,291,312	$	1,456,420
Loan receivables
Low	$	267,394	$	279,607
Medium	92,497		95,524
High	11,565		11,511
Not Scored	14,463		11,173
Total	$	385,919	$	397,815

Leveraged Leases

Our investment in leveraged lease assets at September 30, 2014 and December 31, 2013 consisted of the following:



	September 30, 2014			December 31, 2013
Rental receivables	$	50,544		$	61,721
Unguaranteed residual values	12,561			13,235
Principal and interest on non-recourse loans	(27,658		)	(35,449		)
Unearned income	(2,982		)	(5,097		)
Investment in leveraged leases	32,465			34,410
Less: deferred taxes related to leveraged leases	(12,621		)	(15,078		)
Net investment in leveraged leases	$	19,844		$	19,332