Buying a Franchise in Belgium: Investigate Supplier Payments

A franchise with low royalties is not necessarily good value. The franchisor may also receive income from suppliers you are required to buy from. That need not be a problem: collective purchasing can strengthen the franchise network. But before you buy a franchise, you need to understand how money flows through the system, which benefits reach your business and what you ultimately pay for products and services.

1. Map out the money flows behind your purchases

Look beyond the invoice you receive as a franchisee. A supplier might, for example, pay the franchisor a fee based on purchases made by outlets in the network. The franchisor may also buy products itself and resell them at a margin. Other possible arrangements include annual volume bonuses or contributions towards joint marketing activities.

These are possible revenue models, not indications that any particular franchise actually uses them. Ask about the specific arrangements behind the franchise opportunity you are considering.

For each major purchasing category, draw up an overview covering four questions:

• Who do you buy from? Directly from an external supplier, from the franchisor or from a related company?
• What choice do you have? Is the supplier mandatory, recommended or freely chosen?
• Who receives a benefit? Your business, the franchisor or both?
• How is that benefit calculated? By purchase volume, turnover, a fixed contribution or some other basis?

Include mandatory services such as software, payment solutions, cleaning and logistics. Indirect payments can arise beyond purchases of goods for resale. Do not just ask whether there is a commission; ask whether any other financial benefits are linked to your purchases.

2. Check Belgium’s disclosure requirements

Belgium has specific rules on pre-contractual disclosure for commercial cooperation agreements. These are set out in Title 2 of Book X of the Belgian Code of Economic Law (WER) and apply to franchise agreements that meet the statutory definition. General contract law and other relevant rules also continue to apply.

Under Article X.27 WER, you must receive the draft agreement and a separate pre-contractual disclosure document, generally known in Belgium as the PID, at least one month before entering into the agreement. This document contains key contractual provisions and socio-economic information.

Article X.28 WER is particularly relevant to supplier payments. Any agreed direct remuneration must be clearly described. Any agreed indirect remuneration must also be disclosed, together with the method used to calculate it. Have an adviser assess whether financial benefits arising from your purchases have been properly explained as indirect remuneration.

A general statement such as ‘the franchisor may receive benefits from partners’ does not give you a useful picture of the financial implications. Ask in writing which payments are involved and how they are calculated. Have your legal adviser compare the response with the PID and the draft agreement.

The disclosure requirement does not mean you are automatically entitled to every supplier bonus or to inspect all supplier contracts. The distinction matters: transparency about a payment is not the same as a contractual right to have it passed on to you.

3. Calculate your actual purchasing benefit

A centrally negotiated discount tells you little without the full purchasing terms. A lower product price may come with higher transport costs, mandatory pack sizes or unfavourable payment terms. Conversely, a slightly higher price may be justified by reliable delivery, consistent quality or less administrative work.

Work with your accountant to put together a representative basket of purchases. Use products or services that your future business will need regularly. Request up-to-date pricing and record the following for each item:

• the purchase price after unconditional discounts;
• transport, ordering and other surcharges;
• minimum purchase quantities and payment terms;
• conditions for any retrospective rebates or bonuses;
• who receives a bonus and when it is settled.

Compare like-for-like offers only. An alternative supplier with different quality standards or delivery terms is not a reliable benchmark. The purpose of this comparison is to assess your costs; it does not automatically give you permission to buy outside the franchise’s purchasing arrangements.

Do not treat an uncertain annual bonus as a guaranteed saving. Calculate your margin without it too. This is especially important when the benefit depends on the network’s combined purchasing volume, over which you have only limited influence.

4. Put allocation and checking arrangements in writing

If supplier benefits form part of the sales pitch, the arrangements must be verifiable. Ask how your share is determined, when it is credited or paid and what information you will receive. Also agree how errors can be reported and corrected.

Watch out for wording such as ‘benefits will be passed on where possible’. This makes it difficult to budget for what your business will actually receive. A more specific agreement identifies the payment concerned, the basis of calculation, any deductions and the settlement date.

Finally, ask what happens to benefits already accrued if you leave the network before the annual settlement. A supplier bonus paid later may relate to purchases you made earlier. Ensure the agreement states whether you retain any entitlement to it and how the final settlement will be handled.

Practical conclusion: do not assess only what you pay directly to the franchisor. Map out the income generated around mandatory purchases, calculate your own net costs and get any promised purchasing benefits recorded in writing before you sign.