What factors are considered when estimating the allowance for credit losses for Del Taco franchisees?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
Allowance for credit losses — The Company closely monitors the financial condition of our franchisees and estimates the allowance for credit losses based on the lifetime expected loss on receivables. These estimates are based on historical collection experience with our franchisees as well as other factors, including current market conditions and events. Credit quality is monitored through the timing of payments compared to predefined aging criteria and known facts regarding the financial condition of the franchisee or customer. Account balances are charged off against the allowance after recovery efforts have ceased. The Company's allowance for doubtful accounts has not historically been material.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 58)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the company considers several factors when estimating the allowance for credit losses related to its franchisees. These estimates are based on the lifetime expected loss on receivables. Del Taco monitors the financial condition of its franchisees and uses historical collection experience as a primary basis for these estimates.
In addition to historical data, Del Taco also takes into account current market conditions and specific events that may impact a franchisee's ability to pay. The credit quality of franchisees is continuously monitored through the timing of their payments, which is compared against predefined aging criteria. Any known facts regarding the financial condition of a franchisee or customer are also considered in this assessment.
Del Taco charges off account balances against the allowance for credit losses after all recovery efforts have ceased. The FDD states that the company's allowance for doubtful accounts has not historically been material. This suggests that, in the past, credit losses from franchisees have not significantly impacted Del Taco's financial statements.