How does Alloy assess the collectibility of its accounts receivable?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
Accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for credit losses for estimated losses resulting from the inability of some of its franchisees to make required payments. Unbilled accounts receivable, which are included in accounts receivable, represent amounts the Company has an unconditional right to receive payment for, although invoicing is subject to contractual billing requirements. The Company assesses collectibility by reviewing accounts receivable and its contract assets on a collective basis where similar risk characteristics exist. In determining the amount of the allowance for credit losses, management considers historical collectibility and makes judgments about the creditworthiness of the pool of franchisees based on credit evaluations. Current market conditions and reasonable and supportable forecasts of future economic conditions are considered in adjusting the historical losses to determine the appropriate allowance for for credit losses. Uncollectible accounts are written off when all collection efforts have been exhausted. The Company determined the allowance for credit losses was not significant as of December 31, 2024 and 2023, and therefore no amounts have been recognized.
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
According to Alloy's 2025 Franchise Disclosure Document, the company assesses the collectibility of its accounts receivable by reviewing these receivables and its contract assets collectively, focusing on areas with similar risk characteristics. This means Alloy groups franchisees with comparable risk profiles together for assessment purposes.
To determine the allowance for credit losses, Alloy's management considers historical collectibility data and makes informed judgments about the creditworthiness of its franchisees. These judgments are based on credit evaluations, which likely involve analyzing franchisees' financial backgrounds and payment histories. Alloy also takes into account current market conditions and forecasts of future economic conditions to adjust historical losses and determine an appropriate allowance for credit losses.
Alloy writes off uncollectible accounts when all collection efforts have been exhausted. As of December 31, 2024, and 2023, the allowance for credit losses was determined to be insignificant, and therefore, no amounts were recognized. This suggests that Alloy has generally experienced success in collecting its accounts receivable from franchisees.