What financial instruments potentially subject Craters & Freighters to a significant concentration of credit risk?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
fic identification method.
Financial Instruments
The Company's balance sheets include the following financial instruments: cash and cash equivalents, investments, accounts and notes receivable, and accounts payable. The Company considers the carrying amounts in the financial statements to approximate fair value for these financial instruments because of the relatively short period of time between origination of the instruments and their expected realization.
Note 1: Summary of Significant Accounting Policies (Continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash, investments and accounts receivables.
Accounts and Notes Receivable
Accounts and notes receivable consist of current and past due franchise support fees and royalties. Late payments may be subjected to a one and a half percent interest fee per month on the total amount of late royalty payment. The Company received interest from royalty payments totaling $3,424 and $2,604 for the years ended December 31, 2024 and 2023, respectively.
At the Company's discretion, unpaid franchisee balances may be converted to a note receivable with payment terms between twenty-four and thirty-six months, accruing interest at six percent. As of December 31, 2024, there was $16,991 in outstanding notes receivable from franchisees relating to unpaid balances, of which $11,662 is due within one-year and $5,329 is due in 12-24 months. As of December 31, 2023, there were no Franchisee accounts with past due balances converted to notes receivable. Default on notes receivable will result in a termination of the related franchise agreements b
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2025 FDD)
According to Craters & Freighters' 2025 Franchise Disclosure Document, the financial instruments that potentially subject the company to a significant concentration of credit risk primarily consist of cash, investments, and accounts receivables. This means that Craters & Freighters' financial stability is closely tied to the creditworthiness of its customers and the institutions where it holds cash and investments.
For a prospective franchisee, this indicates that the financial health of Craters & Freighters is sensitive to fluctuations in the economy and the ability of its franchisees to pay their dues. Accounts and notes receivable consist of current and past due franchise support fees and royalties. Late payments may be subjected to a one and a half percent interest fee per month on the total amount of late royalty payment. The company received interest from royalty payments totaling $3,424 for the year ended December 31, 2024.
Furthermore, Craters & Freighters may convert unpaid franchisee balances into notes receivable with payment terms between 24 and 36 months, accruing interest at 6%. As of December 31, 2024, there was $16,991 in outstanding notes receivable from franchisees relating to unpaid balances, of which $11,662 is due within one-year and $5,329 is due in 12-24 months. Default on these notes receivable can lead to termination of the franchise agreement. This highlights the importance of franchisees meeting their financial obligations to maintain a stable financial relationship with Craters & Freighters.
Therefore, a potential franchisee should consider the overall economic climate and the potential risk of Craters & Freighters' exposure to credit risk when evaluating the franchise opportunity. Understanding how Craters & Freighters manages these risks is crucial for assessing the long-term viability and stability of the franchise system.