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 Infrastructure products and are for terms ranging generally from two to six years. Commercial financing receivables, which consist of both held for investment and held for sale 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:

The company has a long-standing practice of taking mitigation actions, in certain circumstances, to transfer credit risk to third parties. 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 $408 million and $482 million at December 31, 2021 and 2020, respectively. These borrowings are included in note Q, “Borrowings.”

The company has entered into agreements with third-party financial institutions to sell certain of its client financing receivables, including both loan and lease receivables, for cash proceeds. In addition, on December 24, 2020, the company entered into an agreement with a third-party investor to sell up to $3.0 billion of IBM short-term commercial financing receivables, at any one time, on a revolving basis, starting in the U.S., and Canada in 2020, and expanding to other countries within Europe and Asia Pacific in 2021, including Germany and the UK.

The following table presents the total amount of client and commercial financing receivables transferred:

* More than half of the client financing receivables sold were classified as current assets at the time of sale.

The transfer 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 years ended December 31, 2021 and 2020 were not material.

The following tables present the amortized cost basis for client financing receivables at December 31, 2021 and 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.

When determining the allowances, financing receivables are evaluated either on an individual or a collective basis. For the company’s policy on determining allowances for credit losses, refer to note A, “Significant Accounting Policies.”

The company summarizes information about the amortized cost basis for 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.

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

(2)	Of the amortized cost not accruing, there was a related allowance of $153 million and $178 million at December 31, 2021 and 2020, respectively. Financing income recognized on these receivables was immaterial for the years ended December 31, 2021 and 2020, 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 for client financing receivables by credit quality indicator at December 31, 2021 and 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 reduce the risk to IBM.


($ in millions)
	Americas				EMEA				Asia Pacific
At December 31, 2021:	Aaa - Baa3		Ba1 - D		Aaa - Baa3		Ba1 - D		Aaa - Baa3		Ba1 - D
Vintage year
2021	$	2,556	$	1,147	$	1,181	$	778	$	565	$	226
2020		1,013		392		506		342		381		86
2019		544		236		287		291		297		51
2018		338		117		189		85		211		64
2017		108		50		15		52		74		17
2016 and prior		20		53		21		46		38		20
Total	$	4,579	$	1,994	$	2,198	$	1,595	$	1,567	$	464


($ 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 for the years ended December 31, 2021 and 2020.