What happens when Clear Pest Pros determines that notes receivable are uncollectible?

According to Clear Pest Pros's 2025 Franchise Disclosure Document, when the company determines that notes receivable are uncollectible, the uncollectible amounts are written off against the allowance for credit losses during the period in which they are deemed uncollectible. If any of these amounts are later recovered, they are recognized as income when received. 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.

Clear Pest Pros reports notes receivable at the original issue amount plus accrued interest, less any principal repaid. Interest is recognized based on the terms of the specific notes. The company establishes an allowance for credit losses to account for amounts expected to be uncollectible over the contractual life of the notes receivable. This allowance is determined by collectively evaluating the notes receivable and calculating the allowance using an expected loss model. This model considers historical loss rates, current economic conditions, and reasonable forecasts, including factors like unemployment and consumer spending data.

For a prospective Clear Pest Pros franchisee, this means that the franchisor has a system in place to account for and manage the risk of franchisees defaulting on their notes receivable. The company actively monitors these notes and makes adjustments to their financial statements to reflect potential losses. This also means that Clear Pest Pros considers factors such as unemployment and consumer spending when determining whether or not a note receivable is uncollectible. As of December 31, 2024, $128 of notes receivable were considered past due.