How does Clear Pest Pros determine the allowance for credit losses on notes receivable?
Clear_Pest_Pros Franchise · 2025 FDDAnswer from 2025 FDD Document
ectible. Recoveries of amounts previously written off are recognized when received.
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 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. Notes are considered delinquent if th
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 67)
What This Means (2025 FDD)
According to Clear Pest Pros's 2025 Franchise Disclosure Document, the company establishes an allowance for credit losses for notes receivable based on the expected uncollectible amounts over the contractual life of the notes. Clear Pest Pros collectively evaluates these notes to determine the allowance.
The company calculates this allowance using an expected loss model. This model takes into account Clear Pest Pros's actual historical loss rates, which are then adjusted to reflect current economic conditions. These adjustments also incorporate reasonable and supportable forecasts, with specific consideration given to unemployment and consumer spending data.
When amounts are deemed uncollectible, they are written off against the allowance for credit losses during that period. Conversely, any recoveries of amounts previously written off are recognized when they are received. Notes are considered delinquent if their repayment terms are not met. As of December 31, 2024, $128 of notes receivable were considered past due.
This approach to determining the allowance for credit losses on notes receivable provides a transparent view of Clear Pest Pros's financial health. It also gives prospective franchisees insight into how the company manages and accounts for potential credit losses, which can arise from financing arrangements with franchisees.