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Accounts Receivable and Finance Receivables | 9 Months Ended
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Sep. 30, 2017
Accounts Receivable and Finance Receivables |
Accounts Receivable and Finance Receivables | Note 5. Accounts Receivable and Finance Receivables Accounts Receivable Accounts receivable is composed of the following:
(In millions) |  |  |  |  |  | September 30, 2017 |  | December 31, 2016
Commercial |  |  |  |  | $ | 1,061 | $ | 797
U.S. Government contracts |  |  |  |  |  | 310 |  | 294
|  |  |  |  |  | 1,371 |  | 1,091
Allowance for doubtful accounts |  |  |  |  |  | (27) |  | (27)
Total |  |  |  |  | $ | 1,344 | $ | 1,064
We have unbillable receivables, primarily on U.S. Government contracts, that arise when the revenues we have appropriately recognized based on performance cannot be billed yet under terms of the contract. Unbillable receivables within accounts receivable totaled $201 million at September 30, 2017 and $178 million at December 31, 2016. Finance Receivables Finance receivables are presented in the following table:
(In millions) |  |  |  |  |  | September 30, 2017 |  | December 31, 2016
Finance receivables* |  |  |  |  | $ | 858 | $ | 976
Allowance for losses |  |  |  |  |  | (34) |  | (41)
Total finance receivables, net |  |  |  |  | $ | 824 | $ | 935
* Includes finance receivables held for sale of $30 million at both September 30, 2017 and December 31, 2016. Credit Quality Indicators and Nonaccrual Finance Receivables We internally assess the quality of our finance receivables based on a number of key credit quality indicators and statistics such as delinquency, loan balance to estimated collateral value and the financial strength of individual borrowers and guarantors. Because many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans on a quarterly basis and classify these loans into three categories based on the key credit quality indicators for the individual loan. These three categories are performing, watchlist and nonaccrual. We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Accrual of interest income is suspended for these accounts and all cash collections are generally applied to reduce the net investment balance. Once we conclude that the collection of all principal and interest is no longer doubtful, we resume the accrual of interest and recognize previously suspended interest income at the time either a) the loan becomes contractually current through payment according to the original terms of the loan, or b) if the loan has been modified, following a period of performance under the terms of the modification. Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing. Delinquency We measure delinquency based on the contractual payment terms of our finance receivables. In determining the delinquency aging category of an account, any/all principal and interest received is applied to the most past-due principal and/or interest amounts due. If a significant portion of the contractually due payment is delinquent, the entire finance receivable balance is reported in accordance with the most past-due delinquency aging category. Finance receivables categorized based on the credit quality indicators and by the delinquency aging category are summarized as follows:
(Dollars in millions) |  |  |  |  |  | September 30, 2017 |  | December 31, 2016
Performing |  |  |  |  | $ | 699 | $ | 758
Watchlist |  |  |  |  |  | 59 |  | 101
Nonaccrual |  |  |  |  |  | 70 |  | 87
Nonaccrual as a percentage of finance receivables |  |  |  |  |  | 8.45% |  | 9.20%
Less than 31 days past due |  |  |  |  | $ | 740 | $ | 857
31-60 days past due |  |  |  |  |  | 38 |  | 49
61-90 days past due |  |  |  |  |  | 20 |  | 18
Over 90 days past due |  |  |  |  |  | 30 |  | 22
60 + days contractual delinquency as a percentage of finance receivables |  |  |  |  |  | 6.04% |  | 4.23%
Impaired Loans On a quarterly basis, we evaluate individual finance receivables for impairment in non-homogeneous portfolios and larger balance accounts in homogeneous loan portfolios. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification. Interest income recognized on impaired loans was not significant in the first nine months of 2017 or 2016. A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:
(In millions) |  |  |  |  |  | September 30, 2017 |  | December 31, 2016
Recorded investment: |  |  |  |  |  |  |  |
Impaired loans with related allowance for losses |  |  |  |  | $ | 33 | $ | 55
Impaired loans with no related allowance for losses |  |  |  |  |  | 41 |  | 65
Total |  |  |  |  | $ | 74 | $ | 120
Unpaid principal balance |  |  |  |  | $ | 80 | $ | 125
Allowance for losses on impaired loans |  |  |  |  |  | 7 |  | 11
Average recorded investment |  |  |  |  |  | 92 |  | 101
A summary of the allowance for losses on finance receivables, based on how the underlying finance receivables are evaluated for impairment, is provided below. The finance receivables reported in this table specifically exclude leveraged leases in accordance with U.S. generally accepted accounting principles.
(In millions) |  |  |  |  |  | September 30, 2017 |  | December 31, 2016
Allowance based on collective evaluation |  |  |  |  | $ | 27 | $ | 30
Allowance based on individual evaluation |  |  |  |  |  | 7 |  | 11
Finance receivables evaluated collectively |  |  |  |  |  | 657 |  | 727
Finance receivables evaluated individually |  |  |  |  |  | 74 |  | 120

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=84173941&loc=d3e5066-111524 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02(4)) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-04(6)) -URI http://asc.fasb.org/extlink&oid=6488278&loc=d3e603758-122996 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02(3)) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=84173941&loc=d3e5162-111524 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.7-03(a)(5)) -URI http://asc.fasb.org/extlink&oid=6879938&loc=d3e572229-122910 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.9-03(7)) -URI http://asc.fasb.org/extlink&oid=6876686&loc=d3e534808-122878 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=84173941&loc=d3e5074-111524 + Details
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