Accounts Receivable

6 Months Ended

Jun. 30, 2020

Accounts receivable and allowance for credit losses

We extend credit on an unsecured basis to most of our customers. Our exposure to expected credit losses depends on the financial condition of our customers and other macroeconomic factors beyond our control, such as deteriorating conditions in the world economy or in the industries we serve, changes in oil prices and political instability. While we actively manage our

credit exposure and work to respond to both changes in our customers’ financial conditions or macroeconomic events, there can be no guarantee we will be able to mitigate all of these risks successfully.

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current creditworthiness based on expected exposure. Our payment terms with customers are based on each customers' creditworthiness and are generally 30-60 days, although certain markets and other customer-specific factors may warrant longer payment terms. Accounts receivable balances that are not paid within the terms of the sales agreement may be subject to finance fees based on the outstanding balance. Although we analyze customers’ payment history and expected creditworthiness, since we extend credit on an unsecured basis to most of our customers, there is a possibility that any accounts receivable not collected may ultimately need to be written off.

Accounts receivable are measured at amortized cost. The health of our receivables is continuously monitored using a risk-based model, taking into consideration both the timeliness and predictability of collections from our customers. We maintain a provision for expected credit losses based upon our historical experience with our customers, along with any specific customer collection issues that we have identified from current financial information and business prospects, as well as any political or economic conditions or other market factors, including certain assumptions based on reasonable forward-looking information from market sources. Principally, based on these credit risk factors, portfolio segments are defined and an internally derived risk-based credit loss reserve is established and applied to each portfolio segment. Customer account balances that are deemed to be at high risk of collectability are reserved at higher rates than customer account balances which we expect to collect without difficulty.

We had accounts receivable of $1.4 billion and $2.9 billion as of June 30, 2020 and December 31, 2019, respectively. We also had an allowance for credit losses related to accounts receivables and other insignificant financing receivables of $48.6 million (including the $11.1 million cumulative transition adjustment to retained earnings related to the implementation of ASU 2016-13) and $35.5 million, as of June 30, 2020 and December 31, 2019, respectively. Changes to the expected credit loss provision during the six months ended June 30, 2020 include global economic outlook considerations as a result of the Company’s assessment of reasonable and supportable forward-looking information including the expected overall impact of the pandemic mainly to the aviation segment. Write-off of uncollectible receivables during the six months ended June 30, 2020 resulted from negative impacts of the pandemic combined with pre-existing financial difficulties experienced by certain customers. Based on an aging analysis as of June 30, 2020, 91% of our net accounts receivable were outstanding less than 60 days.

The following table sets forth activities in our allowance for credit losses (in millions):


	Total


Balance as of January 1, 2020	$	46.6
Charges to provision for credit losses	34.6
Write-off of uncollectible receivables	(32.9)
Recoveries of credit losses	0.4
Translation adjustments	(0.1)
Balance as of June 30, 2020	$	48.6

Financing programs

We have accounts receivable financing programs under receivables purchase agreements (“RPAs”) with Wells Fargo Bank, N.A. and Citibank, N.A. that allow for the sale of our accounts receivable in an amount up to 100% of our outstanding qualifying accounts receivable balances and receive cash consideration equal to the total balance, less a discount margin equal to LIBOR plus 1% to 3%. Accounts receivable sold under the RPAs are accounted for as sales, in accordance with FASB ASC Topic 860, Transfers and Servicing, and excluded from Accounts receivable, net on the accompanying Consolidated Balance Sheets. Fees and interest paid under the RPAs are recorded within Interest expense and other financing costs, net on the Consolidated Statements of Comprehensive Income.

Under the RPAs, accounts receivable sold, which remained outstanding as of June 30, 2020 and December 31, 2019, were $92.6 million and $405.9 million, respectively. The fees and interest paid under the RPAs were $5.5 million and $13.3 million for the six months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, cash payments to the owners of account receivables were $2.5 billion and $4.2 billion, respectively, and cash proceeds from the sale of account receivables were $2.2 billion and $4.2 billion, respectively.