What are the primary components of Checkers' receivables?

According to Checkers' 2025 Franchise Disclosure Document, the company's accounts receivable primarily consist of several key components related to its franchise operations. These include franchise royalties, which are ongoing fees paid by franchisees based on a percentage of their sales, and franchise fees, which are typically upfront payments made by franchisees for the right to operate a Checkers restaurant. Additionally, receivables include sublease rents, which are payments from franchisees who sublease their restaurant locations from Checkers, delivery sales receivables, and retail royalties. These receivables are crucial for Checkers as they represent the income due to the company from its franchisees' operations.

Checkers recognizes an allowance for credit losses, which is an estimate of the amount of receivables that may not be collectible. This allowance is based on historical collection experience and a specific identification basis, considering past due balances and the financial strength of the franchisees. Checkers actively monitors franchisees' compliance with the terms of their franchise agreements and subleases. When a franchisee is not in compliance, they are placed in default status, and Checkers closely monitors the royalties accruing on their sales to determine if collectability is reasonably assured. If Checkers determines that certain amounts are not probable of collection, the related royalty revenue is not recognized, and the accounts receivable are written off when deemed uncollectible.

For a prospective Checkers franchisee, understanding the composition and management of these receivables is important. Franchisees should be aware of the due dates for royalties, rents, and other fees, as well as the potential consequences of non-compliance with the franchise agreement. The fact that Checkers actively monitors compliance and has a process for managing credit losses indicates that they take collections seriously. Franchisees should also be prepared to provide financial information to Checkers to demonstrate their financial strength and ability to meet their obligations. This proactive approach to managing receivables helps Checkers maintain a stable revenue stream and ensures that franchisees are held accountable for their financial commitments.