How does Aerus compute the allowance for credit losses?
Aerus Franchise · 2025 FDDAnswer from 2025 FDD Document
Accounts Receivable
Accounts receivable are recorded at the invoiced amounts owed for products shipped and typically do not bear interest. Amounts are recorded net of an allowance for expected credit losses which represents the best estimate of probable loss inherent in the Company's accounts receivable portfolio. The allowance for credit losses is computed under the allowance method, based on experience, current economic conditions, and the financial condition of customers. Accounts considered uncollectible are charged off against the allowance account in the year they are deemed uncollectible. Other receivables are comprised of tariff and Canadian fee refunds which are expected to be received within one year.
Notes Receivable
Notes receivable consists primarily of amounts due from franchisees. The allowance for credit losses is estimated, based on experience, current economic conditions, and the financial condition of borrowers. Provisions for credit loss is determined based on an evaluation of the credit risk of the franchisee. Credit risk is based on payment history and the franchisee's level of business.
Source: Item 23 — Receipts (FDD pages 74–305)
What This Means (2025 FDD)
According to Aerus's 2025 Franchise Disclosure Document, the allowance for credit losses related to accounts receivable is calculated using the allowance method. This calculation is based on the company's past experiences, current economic conditions, and the financial stability of its customers. Aerus records accounts receivable at the invoiced amounts for shipped products, typically without interest. These amounts are then adjusted by the allowance for expected credit losses, which represents the company's best estimate of potential losses within its accounts receivable portfolio.
For notes receivable, which primarily consist of amounts due from franchisees, Aerus also estimates the allowance for credit losses based on experience, current economic conditions, and the financial condition of the borrowers. The provision for credit loss is determined by evaluating the credit risk of each franchisee, considering their payment history and business level.
Accounts that are deemed uncollectible are written off against the allowance account during the year they are considered uncollectible. This approach ensures that Aerus's financial statements accurately reflect the potential for losses from uncollectible accounts and notes receivable.