Financing receivables primarily consist of client loan and installment payment receivables (loans) and investment in sales-type and direct financing leases (collectively referred to as client financing receivables) and commercial financing receivables. Loans are provided primarily to clients to finance the purchase of hardware, software and services. Payment terms on these financing arrangements are generally for terms up to seven years. Investment in sales-type and direct financing leases relate principally to the company’s Systems products and are for terms ranging generally from two to six years. Commercial financing receivables relate primarily to working capital financing for dealers and remarketers of IBM products. Payment terms for working capital financing generally range from 30 to 90 days.

A summary of the components of the company’s financing receivables is presented as follows:

* Includes guaranteed and unguaranteed residual value.

The company has a long-standing practice of taking mitigation actions, in certain circumstances, to transfer credit risk to third parties, with enhanced focus due to the current macroeconomic uncertainty. These actions may include credit insurance, financial guarantees, nonrecourse borrowings, transfers of receivables recorded as true sales in accordance with accounting guidance or sales of equipment under operating lease. Sale of receivables arrangements are also utilized in the normal course of business as part of the company’s cash and liquidity management.

Financing receivables pledged as collateral for nonrecourse borrowings were $366 million and $482 million at June 30, 2021 and December 31, 2020, respectively. These borrowings are included in note 11, “Borrowings.”

Transfer of Financial Assets

For the six months ended June 30, 2021, the company sold $2,091 million of client financing receivables to third parties, consisting of loan and lease receivables of $1,359 million and $732 million, respectively. More than half of the receivables sold were classified as current assets at the time of sale. For the six months ended June 30, 2020, the company sold $711 million of client financing receivables to third parties, consisting of loan and lease receivables of $294 million and $417 million, respectively.

On December 24, 2020, the company entered into an agreement with a third-party investor to sell up to $3,000 million of IBM short-term commercial financing receivables, at any one time, on a revolving basis. The company sold $2,621 million of commercial financing receivables under the agreement for the six months ended June 30, 2021. In addition, the company included $467 million and $383 million of commercial financing receivables classified as held for sale at June 30, 2021 and December 31, 2020, respectively, in short-term financing receivables in the Consolidated Balance Sheet. The carrying value of the receivables classified as held for sale approximates fair value. The company did not have any sales of commercial financing receivables for the six months ended June 30, 2020.

The transfers of these receivables qualified as true sales and therefore reduced financing receivables. The cash proceeds from the sales are included in cash flows from operating activities and the impacts to the Consolidated Income Statement, including fees and net gain or loss associated with the transfers of these receivables for the six months ended June 30, 2021 and June 30, 2020, were not material.

Financing Receivables by Portfolio Segment

The following tables present the amortized cost basis of client financing receivables at June 30, 2021 and December 31, 2020, further segmented by three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. The commercial financing receivables portfolio segment is excluded from the tables in the sections below as the receivables are short term in nature and the current estimated risk of loss and resulting impact to the company’s financial results are not material.


(Dollars in millions)
At June 30, 2021:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	6,538	$	4,039	$	2,500	$	13,077
Allowance for credit losses:
Beginning balance at January 1, 2021	$	141	$	77	$	37	$	255
Write-offs	$	(4)	$	(1)	$	(7)	$	(12)
Recoveries		0		0		1		1
Additions/(releases)		(16)		(2)		(4)		(22)
Other*		1		(2)		0		(1)
Ending balance at June 30, 2021	$	122	$	73	$	26	$	221


(Dollars in millions)
At December 31, 2020:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	7,758	$	5,023	$	3,042	$	15,822
Allowance for credit losses:
Beginning balance at January 1, 2020	$	142	$	69	$	41	$	252
Write-offs	$	(28)	$	(3)	$	(3)	$	(34)
Recoveries		0		0		2		3
Additions/(releases)		33		5		(4)		34
Other*		(6)		6		1		1
Ending balance at December 31, 2020	$	141	$	77	$	37	$	255

* Primarily represents translation adjustments.

IBM continues to monitor the global impacts from the COVID-19 pandemic as well as its impact on external economic models. The company’s allowance for credit losses at June 30, 2021 and December 31, 2020 reflects the qualitative process which is described further in note A, “Significant Accounting Policies” in the company’s 2020 Annual Report. Any changes to economic models that occurred after the balance sheet date will be reflected in future periods.

Past Due Financing Receivables

The company summarizes information about the amortized cost basis of client financing receivables, including amortized cost aged over 90 days and still accruing, billed invoices aged over 90 days and still accruing, and amortized cost not accruing.


					Amortized		Billed		Amortized
	Total		Amortized		Cost		Invoices		Cost
(Dollars in millions)	Amortized		Cost		> 90 Days and		> 90 Days and		Not
At June 30, 2021:	Cost		> 90 Days (1)		Accruing (1)		Accruing		Accruing (2)
Americas	$	6,538	$	343	$	251	$	9	$	95
EMEA		4,039		103		15		4		92
Asia Pacific		2,500		33		10		3		23
Total client financing receivables	$	13,077	$	479	$	276	$	16	$	210


					Amortized		Billed		Amortized
	Total		Amortized		Cost		Invoices		Cost
(Dollars in millions)	Amortized		Cost		> 90 Days and		> 90 Days and		Not
At December 31, 2020:	Cost		> 90 Days (1)		Accruing (1)		Accruing		Accruing (2)
Americas	$	7,758	$	295	$	200	$	12	$	96
EMEA		5,023		119		28		5		95
Asia Pacific		3,042		42		12		4		32
Total client financing receivables	$	15,822	$	456	$	241	$	20	$	223

(1)	At a contract level, which includes total billed and unbilled amounts of financing receivables aged greater than 90 days.

(2)	Of the amortized cost not accruing, there was a related allowance of $167 million and $178 million at June 30, 2021 and December 31, 2020, respectively. Financing income recognized on these receivables was immaterial for the three and six months ended June 30, 2021, respectively.

Credit Quality Indicators

The company’s credit quality indicators, which are based on rating agency data, publicly available information and information provided by customers, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moody’s Investors Service credit ratings as shown below. The company uses information provided by Moody’s, where available, as one of many inputs in its determination of customer credit ratings. The credit quality of the customer is evaluated based on these indicators and is assigned the same risk rating whether the receivable is a lease or a loan.

The following tables present the amortized cost basis of client financing receivables by credit quality indicator at June 30, 2021 and December 31, 2020, respectively. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators reflect mitigating credit enhancement actions taken by customers which reduces the risk to IBM.


(Dollars in millions)	Americas				EMEA				Asia Pacific
At June 30, 2021:	Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D
Vintage year:
2021	$	1,339	$	757	$	664	$	607	$	428	$	167
2020		1,514		668		796		614		549		158
2019		751		360		391		389		421		90
2018		528		227		250		144		317		99
2017		176		91		33		80		131		33
2016 and prior		46		80		24		46		78		29
Total	$	4,355	$	2,183	$	2,159	$	1,880	$	1,924	$	576


(Dollars in millions)	Americas				EMEA				Asia Pacific
At December 31, 2020:	Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D
Vintage year:
2020	$	2,818	$	1,449	$	1,513	$	1,427	$	958	$	351
2019		988		623		668		519		564		123
2018		829		360		329		245		419		167
2017		285		154		70		128		205		52
2016		90		52		33		46		114		33
2015 and prior		28		81		22		22		38		18
Total	$	5,038	$	2,720	$	2,635	$	2,387	$	2,298	$	743

Troubled Debt Restructurings

The company did not have any significant troubled debt restructurings during the six months ended June 30, 2021 or for the year ended December 31, 2020.