How does Ledgers estimate its allowance for credit losses related to royalty receivables?
Ledgers Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalty receivables are stated at the amount management expects to collect from balances outstanding at year-end. The Company estimates its allowance for credit losses by considering a number of factors, including the length of time accounts receivable are due, previous loss history, the customer's current ability to pay its obligation and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited against credit loss expense. Management has determined their is no allowance for credit losses related to royalty receivables as of December 31, 2024, 2023, and 2022.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to Ledgers' 2025 Franchise Disclosure Document, the company estimates its allowance for credit losses by considering several factors. These include the length of time accounts receivable are due, previous loss history, the customer's current ability to pay its obligation, and the condition of the general economy and the industry as a whole.
Ledgers writes off accounts receivable when they become uncollectible. If payments are subsequently received on such receivables, they are credited against credit loss expense. However, as of December 31, 2024, 2023, and 2022, management determined that there was no allowance for credit losses related to royalty receivables.
For a prospective franchisee, this means that Ledgers assesses the risk of not collecting royalty payments based on a variety of factors. The fact that there was no allowance for credit losses for 2022-2024 could be interpreted in a few ways. It could mean that Ledgers is very effective at collecting royalty payments, or it could mean that their criteria for determining credit losses are not strict enough. It is important to note that this is just management's determination and could change in the future.