How does the Del Taco parent company estimate the allowance for credit losses?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
Company are included in "Selling, general and administrative expenses" in the accompanying condensed consolidated statements of earnings. In 2025 and 2024, consolidated advertising costs were $10.5 million and $10.4 million, respectively.
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.
The following table summarizes the activity in the allowance for do
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 58)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the parent company monitors the financial condition of its franchisees and estimates the allowance for credit losses based on the lifetime expected loss on receivables. This means Del Taco assesses the risk that franchisees may not be able to pay what they owe. These estimates are informed by the company's past experience in collecting payments from franchisees, as well as current market conditions and specific events that could impact a franchisee's ability to pay.
Del Taco monitors credit quality by tracking the timing of payments against predefined aging criteria and by staying informed about the financial health of each franchisee or customer. This involves setting benchmarks for when payments are due and closely watching for any signs of financial distress among franchisees. When efforts to recover outstanding balances cease, the account balances are charged off against the allowance.
The FDD states that Del Taco's allowance for doubtful accounts has not historically been material. For prospective franchisees, this suggests that Del Taco has generally been successful in collecting payments from its franchisees. The table included in the FDD summarizes the activity in the allowance for doubtful accounts, showing balances at the beginning and end of the period, provisions or reversals for expected credit losses, and write-offs charged against the allowance. For example, the balance as of the beginning of the period was $(4,512) in one year and $(4,146) in the previous year (in thousands).