How does Crepe De Licious determine the allowance for credit losses?
Crepe_De_Licious Franchise · 2025 FDDAnswer from 2025 FDD Document
The allowance estimate is derived from a review of the Company's historical losses based on the aging of its accounts and rebates receivables. This estimate is adjusted for management's assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other factors deemed relevant by the Company. The Company believes historical loss information is a reasonable starting point in which to calculate the expected allowance for credit losses as the Company's portfolio segments have remained consistent. As discussed in Note 3, the Company believes that the 2023 credit loss is unique and does not anticipate it to be reflective of future expected credit losses. Therefore, management believes no allowance for credit losses is necessary as of December 31, 2024. During 2023, the Company had franchisees declare bankruptcy, the Company had anticipated higher than expected credit losses that were incurred in the past. As a result, management has individually assessed these balances for an allowance for credit losses as of December 31, 2023. During 2024, the accounts receivables were written off against the allowance.
The Company will write-off receivables when there is information that indicates the debtor is facing significant financial difficulty and there is no possibility of recovery. If any recoveries are made from any accounts previously written off, they will be recognized as an offset to credit loss expense in the year of recovery.
Source: Item 23 — RECEIPTS (FDD pages 57–233)
What This Means (2025 FDD)
According to Crepe De Licious's 2025 Franchise Disclosure Document, the company determines its allowance for credit losses by reviewing its historical losses based on the aging of its accounts and rebates receivables. This estimate is then adjusted based on management's assessment of current conditions, forecasts regarding future events, and any other factors deemed relevant by Crepe De Licious. The company believes that historical loss information is a reasonable starting point for calculating the expected allowance for credit losses, given the consistency of its portfolio segments.
However, the document notes that in 2023, due to franchisee bankruptcies, Crepe De Licious anticipated higher than expected credit losses. As a result, management individually assessed these balances for an allowance for credit losses as of December 31, 2023. The document specifies that receivables are written off when there is information indicating the debtor is facing significant financial difficulty and there is no possibility of recovery. If any recoveries are made from accounts previously written off, they are recognized as an offset to credit loss expense in the year of recovery.
For a prospective franchisee, this means that Crepe De Licious actively monitors and adjusts its allowance for credit losses based on both historical performance and current economic conditions. The bankruptcy of franchisees can significantly impact these calculations, as seen in 2023. It is important to note that management's assessment and forecasts play a crucial role in determining the allowance, which introduces a degree of subjectivity into the process. Franchisees should be aware that the financial health of the existing franchise network can directly influence the company's financial statements and, potentially, its ability to support franchisees.