Under what circumstances does Checkersrallys establish specific allowances for notes receivable?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
Notes receivable consist of funds extended to franchisees as consideration for the sale of restaurants and repayment terms on past due rents and royalties. Specific allowances are established when collection is no longer deemed likely. With respect to secured notes, the assets of the associated restaurant often act as collateral. In the event of default, the Company has the option to acquire the restaurant assets, with the balance of the outstanding notes included in the consideration provided by the Company. However, not all notes are collateralized. Interest on outstanding notes is charged according to the terms of the promissory note and is recognized on a period basis over the term of the note.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, notes receivable consist of funds the company extends to franchisees for restaurant sales, past due rents, and royalties. Checkersrallys establishes specific allowances for these notes when collection is no longer deemed likely. This means that if Checkersrallys assesses that a franchisee is unlikely to repay the funds, they will set aside an allowance to account for the potential loss.
For secured notes, the assets of the associated restaurant often act as collateral. If a franchisee defaults, Checkersrallys has the option to acquire the restaurant assets, with the balance of the outstanding notes included in the consideration provided by the company. However, not all notes are collateralized, which could increase the risk of loss if a franchisee defaults. Interest on outstanding notes is charged according to the terms of the promissory note and is recognized on a period basis over the term of the note.
This policy is important for prospective franchisees to understand, as it outlines the conditions under which Checkersrallys may take action if a franchisee is unable to meet their financial obligations. It also highlights the importance of carefully reviewing the terms of any promissory notes and understanding the potential consequences of default. Franchisees should inquire about the typical terms and conditions of these notes, the criteria used to determine when collection is no longer likely, and the process for acquiring restaurant assets in the event of default.