Is Cinch I.T. obligated to collect all accounts receivable after a franchise termination?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
- (x) Assign any and all accounts receivable to Us for collection.
In connection therewith You hereby appoint Us as attorney-in-fact to engage in such collection activities following the termination or expiration of this Agreement and You specifically undertake to refrain from engaging in any such collection activities upon termination or expiration.
We agree to employ good faith efforts, including, where appropriate in Our sole and exclusive judgment, the commencement of legal proceedings, to collect such accounts receivable.
Nothing contained herein shall be construed or deemed to impose any duty or obligation upon Us to collect such accounts receivable and, if all or a portion of such accounts receivable are not collected by Us, You release and waive any claims thereto against Us.
If We are successful in collecting all or a part of such accounts receivable, We shall remit to You such sums collected after first deducting any and all monies owed to Us and Our affiliates; after deducting the pro rata cost of servicing the client(s) with respect to whom the receivables were collected; and, after further deducting Our costs of collection; and
Source: Item 23 — RECEIPTS (FDD pages 60–269)
What This Means (2024 FDD)
According to Cinch I.T.'s 2024 Franchise Disclosure Document, franchisees are required to assign any and all accounts receivable to Cinch I.T. for collection upon termination or expiration of the franchise agreement. The franchisee appoints Cinch I.T. as their attorney-in-fact to engage in collection activities and must not engage in any collection activities themselves after termination or expiration.
However, Cinch I.T. is not obligated to collect these accounts receivable. While Cinch I.T. agrees to employ good faith efforts to collect the receivables, including legal proceedings if deemed appropriate, the FDD explicitly states that nothing imposes a duty or obligation on Cinch I.T. to collect such accounts. If Cinch I.T. does not collect all or a portion of the receivables, the franchisee waives any claims against Cinch I.T. related to the uncollected amounts.
If Cinch I.T. is successful in collecting the accounts receivable, they will remit the collected sums to the franchisee after deducting any monies owed to Cinch I.T. and its affiliates, the pro rata cost of servicing the client(s) related to the receivables, and Cinch I.T.'s costs of collection. This means that the franchisee will only receive the remaining balance after all these deductions are accounted for.
This arrangement carries risks for the franchisee, as Cinch I.T. has the discretion to decide whether or not to pursue collection and to deduct various costs before remitting any funds. A prospective franchisee should consider the potential for uncollected receivables and the costs associated with Cinch I.T.'s collection efforts when evaluating the financial viability of the franchise.