What factors does Checkersrallys evaluate when determining the collectability of accounts receivable?

According to Checkersrallys's 2025 Franchise Disclosure Document, when determining the collectability of accounts receivable, Checkersrallys evaluates several factors. These include the debtor's financial condition, historical experience with the debtor, and the value of any pledged security interest. Accounts receivable primarily consist of franchise royalties, franchise fees, sublease rents, delivery sales receivables, and retail royalties.

Checkersrallys establishes reserves for potential credit losses using the specific identification method, which relies on the company's best estimate of the collectible balance. The company also monitors franchisees to ensure they comply with the terms of their franchise agreement and sublease, if applicable. If a franchisee fails to comply, they are placed in default status, and Checkersrallys closely monitors the royalties accruing from their sales to determine if collection is reasonably assured.

Franchise agreements often provide Checkersrallys with remedies in the event of a franchisee's default on outstanding balances. These remedies may include a security interest in the assets of the business when a sublease is in place or a personal guarantee from the franchisee. This helps Checkersrallys maintain a high rate of collection on accounts receivable.

For a prospective franchisee, this means that Checkersrallys actively assesses the financial health and payment history of its franchisees to manage its accounts receivable. The use of security interests and personal guarantees in franchise agreements provides Checkersrallys with additional protection against potential losses from uncollectible accounts.