What happens when a Checkersrallys franchisee is placed in default status?
Checkersrallys 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 Checkersrallys's 2025 Franchise Disclosure Document, when a franchisee is not in compliance with the terms of the franchise agreement or sublease, they are placed in default status. Once a Checkersrallys franchisee is in default status, Checkersrallys closely monitors the royalties accruing from the franchisee's sales to determine if collecting those royalties is reasonably assured.
If Checkersrallys determines that collecting certain amounts from the franchisee is not probable, they will not recognize the related royalty revenue. Furthermore, Checkersrallys writes off the related accounts receivable when it determines that those receivables are uncollectible.
This means that Checkersrallys takes a proactive approach to managing financial risks associated with franchisees who are not meeting their obligations. By closely monitoring royalties and writing off uncollectible amounts, Checkersrallys aims to maintain accurate financial records and minimize potential losses. For a prospective franchisee, this highlights the importance of adhering to the franchise agreement and maintaining financial stability to avoid default status and its potential consequences.