CPSI 2017 Annual Report

80 Credit Quality of Financing Receivables and Allowance for Credit Losses The following table is a roll-forward of the allowance for financing credit losses for the years ended December 31, 2017 and 2016: (In thousands) Beginning Balance Provision Charge-offs Recoveries Ending Balance December 31, 2017 . . . . . . . . . . . . $ 2,198 $ 1,823 $ (777) $ — $ 3,244 December 31, 2016 . . . . . . . . . . . . $ 654 $ 1,762 $ (218) $ — $ 2,198 The Company’s financing receivables are comprised of a single portfolio segment, as the balances are all derived from short-term payment plan arrangements and sales-type leasing arrangements within our target market of community hospitals. The Company evaluates the credit quality of its financing receivables based on a combination of factors, including, but not limited to, customer collection experience, economic conditions, the customer’s financial condition, and known risk characteristics impacting the respective customer base of community hospitals, the most notable of which relate to enacted and potential changes in Medicare and Medicaid reimbursement rates as community hospitals typically generate a significant portion of their revenues and related cash flows from beneficiaries of these programs. In addition to specific account identification, the Company utilizes historical collection experience to establish the allowance for credit losses. Financing receivables are written off only after the Company has exhausted all collection efforts. The Company has been successful in collecting its financing receivables and considers the credit quality of such arrangements to be good, especially as the underlying assets act as collateral for the receivables. Customer payments are considered past due if a scheduled payment is not received within contractually agreed upon terms. To facilitate customer collection and credit monitoring efforts, financing receivable amounts are invoiced and reclassified to trade accounts receivable when they become due, with all invoiced amounts placed on nonaccrual status. As a result, all past due amounts related to the Company’s financing receivables are included in trade accounts receivable in the accompanying consolidated balance sheets. The following is an analysis of the age of financing receivables amounts (excluding short-term payment plans) that have been reclassified to trade accounts receivable and were past due as of December 31, 2017 and December 31, 2016: (In thousands) 1 to 90 Days Past Due 91 to 180 Days Past Due 181 + Days Past Due Total Past Due December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 980 $ 171 $ — $ 1,151 December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 228 $ 31 $ 34 $ 293 For the year ended December 31, 2017, amounts considered past due increased by $0.9 million compared with the year ended December 31, 2016. In addition, during 2017 our exposure to financially distressed clients, as reflected in the total past due, prompted an increase in client-specific allowance for bad debt reserves related to financing receivables. From time to time, the Company may agree to alternative payment terms outside of the terms of the original financing receivable agreement due to customer difficulties in achieving the original terms. In general, such alternative payment arrangements do not result in a re-aging of the related receivables. Rather, payments pursuant to any alternative payment arrangements are applied to the already outstanding invoices beginning with the oldest outstanding invoices as the payments are received. Because amounts are reclassified to trade accounts receivable when they become due, there are no past due amounts included within the financing receivables or the financing receivables, current portion, net amounts in the accompanying consolidated balance sheets.