What factors does Counselor Realty consider when determining the allowance for credit losses?
Counselor_Realty Franchise · 2025 FDDAnswer from 2025 FDD Document
4, 2023 and 2022
Accounts Receivable
The Company recognizes an allowance for credit losses for trade and other receivables to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset which includes consideration of past events and historical loss experience, current events and also future events based on our expectation as of the balance sheet date. Receivables are written off when the Company determines that such receivables are deemed uncollectible. The Company pools its receivables based on similar risk characteristics in estimating its expected credit losses. In situations where a receivable does not share the same risk characteristics with other receivables, the Company measures those receivables individually. The Company also continuously evaluates such pooling decisions and adjusts as needed from period to period as risk characteristics change.
The Company utilizes the aging method in determining its lifetime expected credit losses on its receivables. This method is used for calculating an estimate of losses based primarily on the Company's historical loss experience. In determining its loss rates, the Company evaluates information related to its historical losses, adjusted for current conditions and further adjusted for the period of time that can be reasonably forecasted. Qualitative and quantitative adjustments related to current conditions and the reasonable and supportable forecast period consider all the following: past due receivables, the customer creditworthiness, changes in the terms of receivables, effect of other external forces such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing receivables. For receivables that are not expected to be collected within the normal business cycle, the Company considers current and forecasted direction of the economic and business environment. Such forecasted information includes: GDP growth, unemployment rates and interest rates, amongst others.
Accounts receivable consists of franchise related fees. Accounts receivable are unsecured and the Company charges 8% interest on past due accounts. Accounts receivable are considered past due if not paid within the terms established. Accounts receivable are written off when they are determined to be uncollectible. The allowance for credit losses was $1,574 and $3,724 as
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 32)
What This Means (2025 FDD)
According to Counselor Realty's 2025 Franchise Disclosure Document, the company determines its allowance for credit losses by considering several factors. The allowance is based on expected credit losses over the life of the assets, taking into account past events, historical loss experience, current events, and future expectations as of the balance sheet date. Counselor Realty pools its receivables based on similar risk characteristics to estimate expected credit losses, and individually measures receivables that do not share the same risk characteristics with other receivables. These pooling decisions are continuously evaluated and adjusted as risk characteristics change.
Counselor Realty uses the aging method to determine lifetime expected credit losses on its receivables, primarily based on the company's historical loss experience. In determining loss rates, the company evaluates information related to its historical losses, adjusted for current conditions and further adjusted for a reasonably forecasted period. Qualitative and quantitative adjustments related to current conditions and the reasonable and supportable forecast period consider past due receivables, customer creditworthiness, changes in the terms of receivables, and the effect of external forces such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing receivables.
For receivables not expected to be collected within the normal business cycle, Counselor Realty considers the current and forecasted direction of the economic and business environment, including GDP growth, unemployment rates, and interest rates. This comprehensive approach ensures that the allowance for credit losses reflects a realistic assessment of potential uncollectible amounts, which directly impacts the accuracy of Counselor Realty's financial statements. The allowance for credit losses was $1,574 and $3,724 as of December 31, 2024 and 2023, respectively.
For a prospective franchisee, understanding how Counselor Realty manages its accounts receivable and determines the allowance for credit losses is crucial. It provides insight into the financial health and risk management practices of the company. Franchisees should inquire about the specific historical loss experience and the methods used to forecast economic conditions to better understand the potential impact on their own receivables and financial stability.