For Annex Brands, when are accounts receivable generally considered past due?
Annex_Brands Franchise · 2025 FDDAnswer from 2025 FDD Document
Accounts receivable primarily consists of continuing franchise fees. Accounts receivable are stated at the amount the Company expects to collect. Accounts receivable are unsecured, and the Company is at risk to the extent such amounts become uncollectible. Accounts receivable are generally considered past due when payments have not been received within 30 days of the due date. The allowance for doubtful accounts includes management's estimate of the amounts expected to be lost on specific accounts receivable and for losses on non-specific accounts included in accounts receivable. In estimating potential losses, management relies on factors surrounding the credit risk of specific franchisees, historical trends, and other information that assists in management's evaluation. The Company writes off accounts receivable once all the Company's standard collection procedures have been unsuccessful and management determines that the receivable is uncollectible.
Source: Item 21 — Financial Statements (FDD page 109)
What This Means (2025 FDD)
According to Annex Brands' 2025 Franchise Disclosure Document, accounts receivable are typically considered past due when payments are not received within 30 days of the due date. For a prospective franchisee, this means that if they have outstanding payments to Annex Brands that are more than 30 days late, those accounts are considered past due. These accounts receivable primarily consist of continuing franchise fees.
Annex Brands manages the risk of uncollectible accounts by estimating potential losses on specific accounts receivable, considering the credit risk of individual franchisees, historical trends, and other relevant information. The company maintains an allowance for doubtful accounts to cover these potential losses. As of September 30, 2024, the allowance for doubtful accounts was $910,000, and as of September 30, 2023, it was $948,000. The net accounts receivable (after deducting the allowance for doubtful accounts) from franchisees were $1,377,000 as of September 30, 2024, and $1,642,000 as of September 30, 2023.
Annex Brands writes off accounts receivable when all standard collection procedures have been exhausted and management determines that the receivable is uncollectible. This indicates that Annex Brands has a process for attempting to collect overdue payments before classifying them as uncollectible and removing them from their books. This is a fairly standard accounting practice.
Given that continuing franchise fees are a percentage of gross sales, a franchisee's ability to manage their own accounts receivable from customers will directly impact their ability to pay Annex Brands on time. Franchisees should maintain diligent accounting practices to ensure timely payments and avoid their accounts being classified as past due.