Under what condition does Checkers place a franchisee in default status?
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, 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, Checkers monitors its franchisees to ensure they comply with all the terms outlined in the franchise agreement and any applicable subleases. If a Checkers franchisee fails to comply with these terms, Checkers will place the franchisee in default status.
Once a franchisee is in default status, Checkers closely monitors the royalties accruing from the franchisee's sales to determine if the royalties are likely to be collected. This monitoring process helps Checkers assess the financial risk associated with the franchisee's operation. If Checkers determines that certain amounts are not likely to be collected, the company will not recognize the related royalty revenue.
Furthermore, Checkers will write off the related accounts receivable when it determines that these amounts are uncollectible. This practice ensures that Checkers' financial statements accurately reflect the recoverable amounts from its franchisees, especially those in default. This is a standard accounting practice to manage and mitigate financial risks associated with franchise operations.