How does Noodles & Company mitigate credit risk related to accounts receivable from franchisees?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
standing checks at year end are in excess of cash and cash equivalents. Such book overdrafts are recorded within accounts payable in the accompanying Consolidated Balance Sheets and within operating activities in the accompanying Consolidated Statements of Cash Flows.
Accounts Receivable
Accounts receivable consists primarily of franchise receivables and vendor rebates, as well as insurance receivables and other miscel
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, the company addresses accounts receivable, which primarily includes franchise receivables. Noodles & Company states that it believes all amounts are collectible and, as a result, no allowance for doubtful accounts has been recorded as of December 31, 2024, or January 2, 2024. However, in 2023, the company recognized $0.5 million of bad debt expense.
This indicates that while Noodles & Company generally expects to collect all receivables, there is still a risk of bad debt. The fact that they recognized $0.5 million in bad debt expense in 2023 suggests that some franchisees or vendors may have had difficulty meeting their financial obligations.
For a prospective franchisee, this means that while Noodles & Company seems confident in its franchisees' ability to pay, it's important to understand the factors that could lead to bad debt and to assess the financial stability of the franchise system. It would be prudent to inquire about the specific reasons for the bad debt expense recognized in 2023 and what measures Noodles & Company has taken to prevent similar issues in the future. Additionally, a potential franchisee may want to evaluate the financial health of existing franchisees to get a sense of the overall risk level.