How does Alloy determine the allowance for credit losses?
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 states accounts receivable at the amount it expects to collect. Alloy maintains allowances for credit losses for estimated losses resulting from franchisees' inability to make required payments. These unbilled accounts receivable are amounts the company has an unconditional right to receive payment for, although invoicing is subject to contractual billing requirements.
To determine the allowance for credit losses, Alloy assesses collectibility by reviewing accounts receivable and its contract assets on a collective basis where similar risk characteristics exist. Management considers historical collectibility and makes judgments about the creditworthiness of the pool of franchisees based on credit evaluations. Current market conditions and reasonable forecasts of future economic conditions are considered in adjusting the historical losses to determine the appropriate allowance for credit losses.
Alloy writes off uncollectible accounts when all collection efforts have been exhausted. As of December 31, 2024, and 2023, Alloy determined that the allowance for credit losses was not significant, and therefore no amounts have been recognized. This indicates that historically, Alloy has not experienced significant losses from franchisees failing to make payments.