How does Coffee News management minimize losses due to bad debts?

According to the 2025 Coffee News Franchise Disclosure Document, Coffee News USA, Inc. has adopted FASB Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326) as of January 1, 2024. This update modifies how Coffee News measures expected claims and credit losses on financial instruments, requiring the measurement and recognition of expected versus incurred losses for financial assets held by the Company, including franchisee accounts receivable. The adoption of this ASU did not have a material impact on the Company's financial statements.

In practical terms, this means Coffee News actively assesses the risk of franchisees not paying their dues and sets aside reserves to cover potential losses. This is a standard accounting practice to ensure the company's financial stability. By using this accounting standard, Coffee News aims to proactively manage potential credit losses from franchisees, ensuring a more accurate reflection of its financial health.

For a prospective franchisee, this indicates that Coffee News is diligent in managing its financial risks. While the FDD states that adopting ASU 2016-13 did not have a material impact, it's still a positive sign that Coffee News is forward-thinking in its accounting practices. This also suggests that Coffee News may have a robust system for evaluating the creditworthiness of potential franchisees and managing ongoing payment risks.