How does Checkersrallys recognize an allowance for credit losses?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
-------------------------------|----|-------|----|-----------|----|-------| | | Gross | | Allowance | | Net | | Gross | | Allowance | | Net | | Total accounts | $ 8,372 | $ | (655) | $ | 7,717 | $ | 7,913 | $ | (514) | $ | 7,399 | | receivables | | | | | | | | | | | |
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.
Credit losses are recorded in general and administrative expenses in the accompanying consolidated statements of operations. The Company had
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company recognizes an allowance for credit losses based on two primary factors: historical collection experience and specific identification of accounts. This specific identification is based on past due balances and the financial strength of the franchisee (obligor). Checkersrallys 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.
When a franchisee is in default, Checkersrallys closely monitors the royalties accruing from their sales to determine if collection is reasonably assured. If Checkersrallys determines that certain amounts are not likely to be collected, the related royalty revenue is not recognized. The accounts receivable are written off when they are deemed uncollectible. These credit losses are then recorded as general and administrative expenses in the company's consolidated statements of operations.
For prospective franchisees, this means that Checkersrallys actively manages its risk related to franchisee payments. The FDD states that Checkersrallys had credit losses of $0.6 million for the fiscal year ended December 30, 2024 (Successor), and $0.1 million for both the period from June 17, 2023 through January 1, 2024 (Successor) and the period from January 3, 2023 through June 16, 2023 (Predecessor). This indicates that while credit losses do occur, Checkersrallys has a system in place to account for and manage them. Franchisees should be aware that their financial health and compliance with the franchise agreement are critical to maintaining a good standing with Checkersrallys and avoiding default status.