How does Embassy Suites determine its expected credit losses for accounts receivable and financing receivables?

According to Embassy Suites' 2025 Franchise Disclosure Document, the company calculates its expected credit losses for accounts receivable and financing receivables based on a combination of factors. These factors include historical collection activity, the specific nature of the financial instruments (accounts receivable from hotel owners and financing receivables from loans to hotel owners), and current and forecasted business conditions.

For a prospective Embassy Suites franchisee, this means that the financial health of existing franchisees and the broader economic outlook can directly impact Embassy Suites' financial statements. The allowance for credit losses represents Embassy Suites' estimate of the amounts they may not be able to collect from franchisees. This allowance reduces the stated value of accounts receivable and financing receivables on Embassy Suites' balance sheet.

The FDD shows that Embassy Suites maintains an allowance for credit losses on both accounts receivable and financing receivables. For example, the accounts receivable were reported net of allowance for credit losses of $10,411 in 2024 and $7,339 in 2023. Financing receivables were reported net of allowance for credit losses of $3,375 in 2024 and $383 in 2023. These figures indicate the amounts that Embassy Suites anticipates it may not collect from its franchisees.

Understanding how Embassy Suites determines its allowance for credit losses can give a potential franchisee insight into the financial risks within the Embassy Suites system. It reflects the creditworthiness of franchisees and the potential for non-payment of royalties and loan repayments, which could affect Embassy Suites' overall financial performance.