For Checkers, what items primarily comprise the accounts receivable?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Accounts receivable is primarily comprised of franchise royalties, franchise fees, sublease rents, delivery sales receivables, and retail royalties. The Company recognizes an allowance for credit losses based on historical collection experience and on a specific identification basis based upon past due balances and the financial strength of the obligor. 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, we closely monitor 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. "Accounts and notes receivable" are written off when it is determined that they are uncollectible.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers's 2025 Franchise Disclosure Document, the accounts receivable primarily consist of franchise royalties, franchise fees, sublease rents, delivery sales receivables, and retail royalties. These receivables are recorded net of an allowance for credit losses. Franchisee-related accounts receivable are typically due within 10 days of billing, and in some cases, Checkers directly withdraws funds from the franchisee's bank account on a predetermined day.
Checkers maintains an allowance for credit losses, with the majority of the balance relating to specific accounts where collection is not expected. These reserves are established using the specific identification method, based on the company's best estimate of the collectible balance. In determining collectability, Checkers evaluates the debtor's financial condition, historical experience with the debtor, and the value of any pledged security interest.
Checkers has historically experienced a high rate of collection due to the franchise agreements providing remedies in the event of a franchisee's default on outstanding balances. These remedies include a security interest in the assets of the business when a sublease is in place, or a personal guarantee from the franchisee. This suggests that Checkers actively manages and mitigates the risk of uncollectible accounts, which is a positive sign for prospective franchisees.