What is the interest rate Carls charges on late payments, and how is it calculated?

According to the 2024 FDD, Carls charges interest on late payments from franchisees. Specifically, if any payment due to Carls is not received by the due date, the franchisee must pay interest on the overdue amount. The interest rate is the lesser of two options: the maximum rate permitted for indebtedness of this nature in the state where the franchised restaurant is located, or 18% per annum. This interest is calculated on a daily basis from the date the payment was originally due until it is paid.

For a prospective Carls franchisee, this means that failing to make timely payments can result in significant additional costs. The 18% annual interest rate, calculated daily, can quickly add up, especially on larger outstanding balances. Franchisees need to be aware of their state's regulations regarding maximum permissible interest rates, as that could potentially be lower than the 18% specified by Carls.

This type of late payment interest charge is a fairly standard practice in franchising and other business agreements. It incentivizes timely payments and compensates the franchisor for the time value of money and the administrative burden of dealing with overdue accounts. Franchisees should ensure they have systems in place to manage payments effectively and avoid incurring these interest charges.