How does Chem Dry calculate the allowance for credit losses related to trade accounts receivable?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
Trade accounts receivable are stated at invoice amounts. An allowance for credit losses is established for amounts expected to be uncollectible over the contractual life of the receivables. The Company collectively evaluates trade receivables to determine the allowance for credit losses. The Company calculates the allowance using an expected loss model that considers the Company's actual historical loss rates adjusted for current economic conditions and reasonable and supportable forecasts. The Company considers unemployment and consumer spending data when making adjustments for reasonable and supportable forecasts. Uncollectible amounts are written off against the allowance for credit losses in the period they are determined to be uncollectible. Recoveries of amounts previously written off are recognized when received.
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, trade accounts receivable are recorded at their invoice amounts. To account for potential non-payment, Chem Dry establishes an allowance for credit losses, which estimates the amounts that may not be collectible over the life of the receivables.
Chem Dry calculates this allowance collectively using an expected loss model. This model considers Chem Dry's historical loss rates, which are then adjusted to reflect current economic conditions and any reasonable forecasts about the future. Specifically, Chem Dry considers factors like unemployment rates and consumer spending data to make these adjustments.
Amounts deemed uncollectible are written off against the allowance for credit losses during the period they are determined to be uncollectible. If any amounts previously written off are later recovered, they are recognized as income when received. For example, in 2023, 2022 and 2021, the allowance for credit losses was $973,000, $2,589,000 and $3,016,000 respectively.