On what basis are Cicis' accounts receivable entered into?
Cicis Franchise · 2025 FDDAnswer from 2025 FDD Document
| ------------- | ||
|---|---|---|
| Cash and cash equivalents | $ 1,854,735 | $ 2,931,372 |
| Cash and cash equivalents—marketing fund, restricted | 434,199 | 771,794 |
| $ 2,288,934 | $ 3,703,166 |
Accounts receivable: Accounts receivable consist primarily of accrued royalty fees and marketing contribution receivables, generally collected weekly in arrears, and vendor rebates. Unpaid accounts receivable with invoice dates over 30 days are non-interest bearing. All accounts receivable are entered into on an unsecured basis. Accounts receivable, trade receivables at December 31, 2022 were $186,610. Accounts receivable, marketing fund, restricted at December 31, 2022 were $1,556,337.
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
The Company adopted Accounting Standards Codification (ASC) 326, Financial Instruments—Credit Losses (ASC 326), as of January 1, 2023, with the cumulative-effect transition method with the required prospective approach. The measurement of expected credit losses under the current expected credit loss (CECL) methodology is applicable to financial assets measured at amortized cost, which include accounts receivable. An allowance for credit losses under the CECL methodology is determined using the loss-rate approach and measured on a collective (pool) basis when similar risk characteristics exist. Where financial instruments do not share risk characteristics, they are evaluated on an individual basis. The adoption of ASC 326 had no material impact on the Company's combined financial statements.
Consistent with ASC 326, the Company offsets accounts receivable with an allowance for credit losses. The allowance for credit losses is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable and is based on historical loss patterns, the number of days that billings are past due, and an evaluation of the potential risk of loss associated with specific accounts. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Recoverie
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 58–64)
What This Means (2025 FDD)
According to Cicis's 2025 Franchise Disclosure Document, the company enters all accounts receivable on an unsecured basis. These receivables primarily consist of accrued royalty fees, marketing contribution receivables (generally collected weekly in arrears), and vendor rebates. This means Cicis does not require collateral or a guarantee to secure the payment of these amounts owed to them.
For a prospective franchisee, this indicates that Cicis extends credit to franchisees and vendors without requiring them to pledge specific assets as security. While this might seem lenient, it also means that Cicis bears a higher risk of non-payment. To mitigate this risk, Cicis has adopted Accounting Standards Codification (ASC) 326, which involves estimating potential credit losses and maintaining an allowance for those losses. As of December 31, 2024, Cicis recorded an allowance for credit losses of $30,166, while the allowance was $0 as of December 31, 2023.
It's important for franchisees to understand that while Cicis doesn't secure these receivables with collateral, they do actively manage the risk of non-payment through accounting practices and likely have internal procedures for managing overdue accounts. Unpaid accounts receivable with invoice dates over 30 days are non-interest bearing. Franchisees should ensure they understand Cicis' payment terms and the potential consequences of late payments, even if those payments are unsecured.