Franchise Payment Settlement in China: Agree Who Controls Sales Receipts, When You Get Paid and What Can Be Deducted

When joining a franchise network, many investors compare franchise fees carefully but overlook how each day’s takings reach their account. Centralised payment collection can simplify management, but who provides the system, whose account receives the money first and whether the brand can make deductions are separate questions. Before signing, understanding the flow of funds matters more than an assurance that “head office handles settlement, so it’s safe”.

1. Map the full journey of your sales receipts

Ask the brand to use a typical order to explain which organisations and accounts handle the customer’s payment, and who ultimately transfers the money to the franchisee. Dine-in sales, delivery orders and redeemed group-buying vouchers should each be explained separately. A demonstration of the till software alone is not enough.

Distinguish between two arrangements: one where head office supplies the system but the payment provider settles directly with the outlet, and another where the brand or another entity collects the funds first and then transfers them to the outlet. These arrangements have different implications for control over funds, payment speed and whom you can pursue if payment is not made.

Before signing, obtain and check at least the following:

• The service agreement for the till system and the merchant agreements for payment channels;
• The registered merchant name, the name on the receiving account and the entity actually responsible for settlement;
• Sample orders, reconciliation statements and records of payments received, with customer information removed;
• A schedule of all payment processing, system and withdrawal fees.

If the contracting company, system provider and settlement company are different entities, specify each one’s responsibilities. A promise from head office that “we will coordinate matters” does not mean it accepts responsibility for payment. Where head office collects and redistributes funds, ask a qualified professional to check whether the payment arrangement complies with applicable rules. Do not treat a brand’s franchise filing as authorisation to provide payment services.

2. Turn settlement rules into terms you can calculate

Commercial franchising in mainland China is specifically governed by the Regulations on the Administration of Commercial Franchises. These require the parties to enter into a written contract covering matters such as the types, amounts and payment methods of franchise fees, as well as liability for breach. They also require the franchisor to provide the prescribed written disclosures and contract text at least 30 days before signing. The Measures for the Administration of Information Disclosure of Commercial Franchises set out further disclosure requirements.

These rules do not mean that every brand follows a standard timetable for transferring sales receipts. Payment settlement therefore still needs to be addressed in detail in a contract schedule, rather than simply stating that it will be handled “in accordance with head office policies”.

Set out a clear calculation: the order amount, less actual refunds, expressly agreed payment processing fees and authorised deductions, equals the amount due for settlement. Every deduction should have a supporting basis. Specify whether it has already been charged on another bill to prevent double charging.

The payment terms should also answer these questions: does the clock start when payment is made, a voucher is redeemed or the transaction is completed? Are periods measured in calendar days or working days? What happens over public holidays? Could a minimum settlement threshold leave small balances unpaid for long periods? Who must approve a change of bank account, and how long will it take?

Finally, test the calculation against three scenarios: an ordinary sale, a refund in a later settlement period and a payment due over a public holiday. If both parties cannot arrive at the same result, the terms are still not clear enough.

3. Limit deduction rights and retain independent reconciliation access

Sales receipts should not automatically be treated as a security deposit that head office can draw on whenever it chooses. If a clause states that “head office may deduct any sums owed by the franchisee”, ask for the permitted deductions, supporting evidence, notification procedure and process for objections to be specified.

Consider negotiating terms requiring head office to provide an itemised breakdown before making deductions. Disputed inspection penalties, compensation claims or other charges should not be deducted solely on the basis of an internal decision. Undisputed sales receipts should still be paid on time while a dispute is being resolved. If a refund reserve is genuinely necessary, define its purpose, amount, review frequency and release conditions.

China’s Civil Code places conditions on statutory set-off rights. A brand cannot simply deduct whatever it wishes because it believes the franchisee owes it money. Where the parties separately agree set-off rights, the specific wording also needs scrutiny, particularly standard-form clauses that materially affect the parties’ rights and interests.

Franchisees should have permission to view and export their own outlet’s order, refund, processing fee, deduction and payment details. The data should be traceable to individual transactions, rather than limited to monthly totals generated by head office. When exporting and retaining records, avoid collecting unnecessary customer personal information.

4. Plan for delayed payments and loss of system access

Settlement risks do not arise only when head office is short of cash. Incorrect account details, payment providers’ risk controls, network failures and contractual disputes can all affect payment. The contract should distinguish between these causes and specify notification duties, responsibility for investigating problems, deadlines for restoring service and fallback arrangements. Avoid allowing every problem to be loosely classified as a “third-party issue”.

For sums that the brand owes but pays late, agree how payment demands should be submitted, a deadline for making good the shortfall and reasonable liability for breach. Also make clear that an outlet’s objection to a deduction should not automatically lead to its till-system access being disabled.

Do not overlook settlement after the relationship ends: when will the final transactions be paid out, how will outstanding refunds be handled, when will retained funds be released, and how can statements be downloaded before the account is closed? Consumer refunds and fee disputes between the brand and franchisee should be accounted for separately.

Before signing, run one more cash-flow check: if sales receipts arrive on the latest date permitted by the contract, can the outlet still pay its rent, wages and suppliers? Include the necessary working capital in your opening budget. Do not assume that today’s sales are cash available to spend today.

The practical takeaway: before paying, obtain a funds-flow diagram, a complete fee schedule and a comprehensive set of settlement terms. Knowing where every payment goes, requiring evidence for every deduction and having a process for every delay provides a sound basis for a sustainable franchise relationship.