How does Carvel determine the allowance for credit losses related to accounts receivable?

According to Carvel's 2025 Franchise Disclosure Document, the company determines the allowance for credit losses based on several factors. These include the aging of customer receivables, which means they assess how long invoices have been outstanding. Carvel also considers its write-off history, which involves looking at past instances where receivables were deemed uncollectible. The financial condition of its subsidiaries' franchisees, licensees, and vendors is also taken into account, providing insight into their ability to pay.

In addition to these specific factors, Carvel considers broader economic conditions and forecasts of future conditions. This allows them to adjust their allowance for credit losses based on anticipated changes in the business environment. The document also states that accounts receivable are written off against the allowance for credit losses when it is probable the receivable will not be recovered. This indicates a proactive approach to managing uncollectible accounts.

For a prospective Carvel franchisee, this means that Carvel actively manages its credit risk by carefully evaluating the factors that could impact the collectibility of its receivables. The ultimate recovery of recorded receivables is dependent upon future economic events and other conditions that may be beyond Carvel's control. Understanding Carvel's approach to credit loss allowance can give franchisees confidence in the financial stability and risk management practices of the company.