When does Creative World School recognize franchise fees from individual franchise sales?
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 Creative World School's 2025 Franchise Disclosure Document, royalties receivable, which include franchise royalties, are recognized on the first day of the month following the sale. This means that Creative World School recognizes revenue from these royalties at the beginning of the month after the franchisee has made a sale that triggers a royalty payment.
For a prospective franchisee, this indicates the timing of when Creative World School expects to receive royalty payments. Franchisees should be aware that they will owe royalties on the first day of the month following any sales. This could impact their cash flow management, as they need to ensure they have sufficient funds to cover these royalty obligations at the beginning of each month.
The FDD also mentions that these receivables are uncollateralized franchisee obligations, meaning Creative World School does not hold any specific assets as security for these payments. The company assesses the collectibility of these royalties and may establish an allowance for credit losses if they anticipate difficulties in collecting payments from franchisees. However, for the years 2022, 2023 and 2024, there was no allowance for credit losses.