Under what conditions does Hardees cease accruing royalties and rent revenue from franchisees?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
We record provisions for estimated credit losses on receivables when we believe our franchisees are unable to make their required payments. We cease accruing royalties and rent revenue from franchisees during the fiscal quarter in which we determine that collectibility of such amounts is not reasonably assured. There are a number of different actions we and/or our franchisees may take to resolve or mitigate franchise collection issues. These actions may include a reduction or deferral of future royalties, a reduction or deferral of future rent for which we are the landlord or the primary obligor to the landlord, or if necessary, acquiring the restaurants or terminating the franchise agreement.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, Hardees will stop accruing royalties and rent revenue from a franchisee when they determine that collecting those amounts is not reasonably assured. This determination is made during the fiscal quarter. This means that if Hardees believes a franchisee is unlikely to pay royalties or rent, they will not continue to add those amounts to what the franchisee owes on their books.
Hardees and the franchisee may attempt to resolve collection issues through various actions. These actions can include reducing or deferring future royalties, reducing or deferring future rent if Hardees is the landlord or primary obligor to the landlord, acquiring the restaurants, or terminating the franchise agreement. These options provide some flexibility in managing financial difficulties a franchisee might face.
For a prospective Hardees franchisee, this policy means that Hardees acknowledges the potential for financial difficulties and has mechanisms to address them. However, it also highlights the importance of maintaining a healthy financial standing, as Hardees will take action if payment is not reasonably assured, potentially leading to significant changes in the franchise agreement or even termination.