Mercedes 2013 Annual Report Download - page 248

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Loans and finance lease receivables related to retail or
small business customers are grouped into homogeneous pools
and collectively assessed for impairment. Impairments are
required for example if there are adverse changes in the payment
status of the borrowers included in the pool, adverse changes
in expected loss frequency and severity, and adverse changes
in economic conditions.
Within the framework of testing for impairment, existing
collateral is generally given due consideration. In that context,
any excess collateral of individual customers is not netted
off with insufficient collateral of other customers. The maximum
credit risk is limited by the fair value of collateral (e.g. financed
vehicles).
If, in connection with contracts, a worsening of payment
behavior or other causes of a need for impairment are recog-
nized, collection procedures are initiated by claims manage-
ment to obtain the overdue payments of the customer, to take
possession of the asset financed or leased or, alternatively,
to renegotiate the impaired contract. Restructuring policies and
practices are based on the indicators or criteria which, in
the judgment of local management, indicate that repayment will
probably continue and that the total proceeds expected to
be derived from the renegotiated contract exceed the expected
proceeds to be derived from repossession and remarketing.
Impairment losses have remained at the favorable low level of
the previous year in a globally stable risk situation.
Further details on receivables from financial services and the
balance of the recorded impairments are provided in Note 14.
Trade receivables. Trade receivables are mostly receivables
from worldwide sales activities of vehicles and spare parts.
The credit risk from trade receivables encompasses the default
risk of customers, e.g. dealers and general distribution com-
panies, as well as other corporate and private customers. Daimler
manages its credit risk from trade receivables using appro-
priate IT applications and databases on the basis of internal
guidelines which have to be followed globally.
A significant part of the trade receivables from each country’s
domestic business is secured by various country-specific
types of collateral. This collateral includes conditional sales,
guarantees and sureties as well as mortgages and cash
deposits. In addition, Group companies counteract credit
risk by means of credit assessments.
For trade receivables from export business, Daimler also
evaluates each general distribution company’s creditworthiness
by means of an internal rating process and its country risk.
In this context, the year-end financial statements and other
relevant information on the general distribution companies
such as payment history are used and assessed.
Depending on the creditworthiness of the general distribution
companies, Daimler usually establishes credit limits and limits
credit risks with the following types of collateral:
– credit insurances,
– first-class bank guarantees and
– letters of credit.
These procedures are defined in the export credit guidelines,
which have Group-wide validity.
Appropriate provisions are recognized for the risks inherent
in trade receivables. For this purpose, all receivables are regu-
larly reviewed and impairments are recognized if there is
any objective indication of non-performance or other contractual
violations. In general, substantial individual receivables and
receivables whose realizability is jeopardized are assessed indi-
vidually. In addition, taking country-specific risks and any
collateral into consideration, the other receivables are grouped
by similarity of contract and tested for impairment collectively.
One important factor for the definition of the impairment to be
recognized is the respective country risk.
Further information on trade receivables and the status
of impairments recognized is provided in Note 19.
Derivative financial instruments. The Group uses derivative
financial instruments exclusively for hedging financial risks
that arise from its commercial business or refinancing activities.
Daimler manages the credit risk exposure in connection with
derivative financial instruments through a limit system, which
is based on the review of each counterparty’s financial
strength. This system limits and diversifies the credit risk.
As a result, Daimler is exposed to credit risk only to a small
extent with respect to its derivative financial instruments.
In accordance with the Group’s risk policy, most derivatives
are contracted with counterparties which have an external
rating of “A” or better.
Other receivables and financial assets. With respect
to other receivables and financial assets in 2013 and 2012,
Daimler is exposed to credit risk only to a small extent.