13. RECEIVABLES

Trade Accounts and Notes Receivable

Trade accounts and notes receivable at November 1, 2020 and November 3, 2019 in millions of dollars follows:

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The allowance for credit losses on trade accounts and notes receivable at November 1, 2020, November 3, 2019, and October 28, 2018, as well as the related activity, in millions of dollars follow:

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The equipment operations sell a significant portion of their trade receivables to financial services and provide compensation to these operations at approximate market rates of interest.

Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Under the terms of the sales to dealers, interest is primarily charged to dealers on outstanding balances, from the earlier of the date when goods are sold to retail customers by the dealer or the expiration of certain interest-free periods granted at the time of the sale to the dealer, until payment is received by the company. Dealers cannot cancel purchases after the company recognizes a sale and are responsible for payment even if the equipment is not sold to retail customers. The interest-free periods are determined based on the type of equipment sold and the time of year of the sale. These periods range from one to twelve months for most equipment. Interest-free periods may not be extended. Interest charged may not be forgiven and the past due interest rates exceed market rates. The company evaluates and assesses dealers on an ongoing basis as to their creditworthiness and generally secures the receivables by retaining a security interest in the goods associated with the trade receivables or with other financial instruments. In certain jurisdictions, the company is obligated to repurchase goods sold to a dealer upon cancellation or termination of the dealer’s contract for such causes as change in ownership and closeout of the business.

During 2020, the company provided short-term payment relief on trade accounts and notes receivables to independent dealers and certain other customers (customers) that were negatively affected by the economic effects of COVID. The relief was provided both in regional programs and case-by-case situations with creditworthy customers. This relief generally included payment deferrals not exceeding three months, extending interest-free periods for up to an additional three months with the total interest-free period not to exceed one year, or reducing interest rates for a maximum of three months. The trade receivable balance granted relief that remained outstanding at November 1, 2020 was $75 million, or approximately 2 percent of the trade receivable portfolio. These actions were taken in response to the economic effects of COVID on customers. Outside of these actions, the company is not modifying its normal sales terms with customers that are outlined in Note 2.

For customers who obtained payment relief, subsequent sales transactions are evaluated to confirm the revenue recognition criteria are met, including the sales price is determinable and collectability of the payments is probable based on the terms outlined in the contract.

Trade accounts and notes receivable include receivables from sales to certain retail customers with payment terms less than twelve months. The customer cannot cancel purchases or return the equipment after delivery. The company evaluates and assesses retail customers at the time of purchase as to their creditworthiness and generally retains a security interest in the goods associated with the receivables.

Trade accounts and notes receivable have significant concentrations of credit risk in the agriculture and turf sector and

construction and forestry sector as shown in the previous table. On a geographic basis, there is not a disproportionate concentration of credit risk in any area.

Financing Receivables

Financing receivables at November 1, 2020 and November 3, 2019 in millions of dollars follow:

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Financing receivables have significant concentrations of credit risk in the agriculture and turf sector and construction and forestry sector as shown in the previous table. On a geographic basis, there is not a disproportionate concentration of credit risk in any area. The company generally retains as collateral a security interest in the equipment associated with retail notes, wholesale notes, and financing leases.

Financing receivables at November 1, 2020 and November 3, 2019 related to the company’s sales of equipment that were included in the table above consisted of the following in millions of dollars:

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*    These retail notes generally arise from sales of equipment by company-owned dealers or through direct sales.

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Financing receivable installments, including unearned finance income, at November 1, 2020 and November 3, 2019 were scheduled as follows in millions of dollars:

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The maximum terms for retail notes are generally seven years for agriculture and turf equipment, and five years for construction and forestry equipment. The maximum term for financing leases is generally seven years. The average term for wholesale notes is less than twelve months.

Past due balances of financing receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date. Non-performing financing receivables represent loans for which the company has ceased accruing finance income. The company ceases accruing finance income when these receivables are generally 90 days delinquent. Generally, when receivables are 120 days delinquent the estimated uncollectible amount, after charging the dealer’s deposit account, if any, is written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.

Due to the significant, negative effects of COVID on dealers and retail customers, the company provided short-term payment relief to dealers and retail customers on financing receivables, which includes retail notes, wholesale notes, revolving charge accounts, and sales-type and direct financing leases. The relief was provided in regional programs and case-by-case situations with customers that were generally current in their payment obligations. This relief generally included payment deferrals or reduced financing rates of three months or less. The balance of financing receivables granted relief was approximately 4 percent of the total financing receivable balance at November 1, 2020. The delinquency status of receivables granted relief is based on the modified payment schedule.

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An age analysis of past due financing receivables that are still accruing interest and non-performing financing receivables at November 1, 2020 and November 3, 2019 follows in millions of dollars:

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An analysis of the allowance for credit losses and investment in financing receivables follows in millions of dollars:

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*    Individual allowances were not significant.

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The negative economic effects related to COVID and other macroeconomic issues have significantly affected certain retail borrowers, particularly of construction equipment.

Past-due amounts over 30 days represented 1.16 percent and 1.23 percent of the receivables financed at November 1, 2020 and November 3, 2019, respectively. The allowance for credit losses represented .53 percent and .44 percent of financing receivables outstanding at November 1, 2020 and November 3, 2019, respectively. In addition, at November 1, 2020 and November 3, 2019, the company’s financial services operations had $136 million and $152 million, respectively, of deposits primarily withheld from dealers and merchants available for potential credit losses.

Financing receivables are considered impaired when it is probable the company will be unable to collect all amounts due according to

the contractual terms. Receivables reviewed for impairment generally include those that are past due, have provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally classified as non-performing.

An analysis of the impaired financing receivables at November 1, 2020 and November 3, 2019 follows in millions of dollars:

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*       Finance income recognized was not material.

**     Primarily financing leases, wholesale receivables, and retail notes.

***   Primarily retail notes.

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A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During 2020, 2019, and 2018, the company identified 574, 522, and 587 receivable contracts, primarily wholesale receivables in Argentina, as troubled debt restructurings with aggregate balances of $108 million, $36 million, and $34 million pre-modification and $95 million, $35 million, and $34 million post-modification, respectively. In 2020 and 2019, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At November 1, 2020, the company had commitments to lend approximately $10 million to borrowers whose accounts were modified in troubled debt restructurings.

Other Receivables

Other receivables at November 1, 2020 and November 3, 2019 consisted of the following in millions of dollars:

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