From whom does Best Western principally receive accounts receivable that contribute to the concentration of credit risk?
Best_Western Franchise · 2025 FDDAnswer from 2025 FDD Document
Accounts receivable, principally from Members, net primarily consists of amounts due from hoteliers with whom the Company has membership, franchise, or license agreements and includes reimbursements of costs the Company incurred on behalf of the hoteliers. These amounts represent amounts owed to the Company by its customers that are recorded at their amortized cost. The Company also records allowances for current expected credit losses. These allowances are based on the Company's assessment of customers credit risk and the collectability of accounts by considering the age of each outstanding invoice and an evaluation of expected risk of credit loss based on current conditions and reasonable and supportable forecasts of future economic conditions over the life of the receivable. The Company pools its trade receivables based on similar risk characteristics in estimating its expected credit losses. In situations where a trade receivable does not share the same risk characteristics with others, the Company measures it individually. The Company also continuously evaluates such pooling decisions and adjusts as needed from period to period as risk characteristics change.
Credit losses for trade receivables are recorded in general and administrative expense in the Consolidated Statements of Revenues and Expenses. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Expected recoveries of amounts previously written off, not to exceed the aggregate of the amount previously written off, are included in determining the allowance at November 30, 2024.
Source: Item 23 — Receipts (FDD pages 108–413)
What This Means (2025 FDD)
According to Best Western's 2025 Franchise Disclosure Document, the company's accounts receivable, which contribute to the concentration of credit risk, come principally from its Members. These accounts receivable primarily consist of amounts due from hoteliers who have membership, franchise, or license agreements with Best Western. These amounts include reimbursements of costs that Best Western incurs on behalf of these hoteliers. These receivables are recorded at their amortized cost.
Best Western also records allowances for current expected credit losses based on its assessment of customers' credit risk and the collectability of accounts. This assessment considers the age of each outstanding invoice and an evaluation of the expected risk of credit loss, taking into account current conditions and reasonable forecasts of future economic conditions over the life of the receivable. To estimate expected credit losses, Best Western pools its trade receivables based on similar risk characteristics. If a trade receivable does not share the same risk characteristics with others, it is measured individually. The company continuously evaluates these pooling decisions and adjusts them as needed when risk characteristics change.
Credit losses for trade receivables are recorded as general and administrative expenses in the Consolidated Statements of Revenues and Expenses. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Expected recoveries of amounts previously written off are included in determining the allowance as of November 30, 2024.