How does Chem Dry determine the allowance for credit losses on notes receivable?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
nd 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.
December 31, 2023, 2022, and 2021 (000s omitted)
Note 2 - Significant Accounting Policies (Continued)
Notes Receivable
Notes receivable are issued upon the sale of a franchise or area franchise rights; in conjunction with the sale of equipment; or, in some cases, to refinance a franchise's overall obligations. Notes receivable are reported at original issue amount plus accrued interest, less principal repaid. Interest is recognized according to the terms of the specific notes. An allowance for credit losses is established for amounts expected to be uncollectible over the contractual life of the notes receivable. The Company collectively evaluates notes receivable 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 econ
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, the company establishes an allowance for credit losses on notes receivable for amounts expected to be uncollectible over the contractual life of the notes receivable. Chem Dry collectively evaluates notes receivable to determine this allowance.
Chem Dry calculates the allowance using an expected loss model. This model considers the company's actual historical loss rates, which are then adjusted for current economic conditions and reasonable, supportable forecasts. To make these adjustments, Chem Dry considers unemployment and consumer spending data.
Uncollectible amounts are written off against the allowance for credit losses during the period they are determined to be uncollectible. Recoveries of amounts previously written off are recognized when they are received. Notes are considered delinquent if the repayment terms are not met. As of December 31, 2023, $68 of notes receivable were considered past due.