For Creative World School, in which month are royalties recognized?
Creative_World_School Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalties receivable are uncollateralized franchisee obligations for franchise royalties and are due on the first day of the month following the sale in accordance with the franchise agreement.
Royalties receivable are stated at the amount management expects to collect from balances outstanding at year end. The carrying amount of royalties receivable is reduced by an allowance for credit losses based on historical experience adjusted for current conditions and reasonable forecasts taking into account geographic and industry-specific economic factors. The Company also considers any specific customer collection issues. At origination, the Company evaluates credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit rating, probabilities of default, industry trends and other internal metrics. On a continuing basis, data for each major customer is regularly reviewed based on past-due status to evaluate the adequacy of the allowance for credit losses.
Management provides for probable uncollectible amounts through a charge to earnings and a credit to the allowance for credit losses based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to royalties receivable. There was no allowance for credits losses for the years ended December 31, 2024, 2023, and 2022.
Source: Item 23 — RECEIPTS (FDD pages 80–247)
What This Means (2025 FDD)
According to the 2025 Creative World School FDD, royalties receivable are recognized on the first day of the month following the sale. This means that Creative World School franchisees are obligated to pay royalties for the previous month's sales at the beginning of each subsequent month.
This policy affects the franchisee's cash flow management. Franchisees need to ensure they have sufficient funds available at the beginning of each month to cover the royalty payments. The FDD also mentions that these royalties are uncollateralized obligations, meaning Creative World School does not hold any specific assets as security for these payments.
Creative World School evaluates credit risk based on factors like payment history, financial information, and industry trends. They also consider customer collection issues. The company uses these evaluations to determine if an allowance for credit losses is needed, although there was no allowance for credit losses reported for the years ended December 31, 2024, 2023, and 2022.