What happens when a Checkers franchisee is placed in default status regarding royalty monitoring?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company monitors that franchisees remain in compliance with all terms of the franchise agreement and sublease, when applicable, and when a franchisee is not in compliance, they are placed in default status. When a franchisee is placed in default status, the Company closely monitors royalties accruing on franchisee sales in order to determine if collectability is reasonably assured. If we determine that certain amounts are not probable of collection, we do not recognize the related royalty revenue. The Company writes off the related accounts receivable when it is determined that they are uncollectible.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, when a franchisee is not in compliance with the terms of the franchise agreement or sublease, Checkers places them in default status. Once a Checkers franchisee is in default status, the company closely monitors the royalties accruing from the franchisee's sales.
This close monitoring is done to determine if the collection of royalties is reasonably assured. If Checkers determines that collecting certain royalty amounts is not probable, they will not recognize the related royalty revenue. This means Checkers will not count that potential income on their financial statements.
Furthermore, Checkers will write off the related accounts receivable when it is determined that these amounts are uncollectible. This indicates that Checkers takes active steps to manage and account for potential losses from franchisees who are not meeting their financial obligations. This is a standard accounting practice to ensure accurate financial reporting.