Franchises in Colombia: reviewing mandatory suppliers

Buying a franchise may mean purchasing ingredients, goods or packaging only from approved suppliers. This requirement helps maintain standards across the franchise network, but it can also limit your margins and your ability to respond to problems. Before committing, check what you must buy, from whom and on what terms, particularly where supply depends on a single company.

1. Identify the scope of mandatory purchasing

A list of suppliers is not enough. Ask the franchisor to distinguish between purchases tied to an exclusive supplier, purchases from approved suppliers and purchases from any supplier that meets the quality specifications. These are different obligations: one allows you to choose between several companies; another ties all purchasing to a single supplier.

Prepare a table for each product or category of supplies, covering:

• The approved supplier and its commercial relationship with the franchisor.
• Technical specifications and whether equivalent products are permitted.
• Minimum order, purchasing frequency and delivery lead time.
• Payment terms and how long quotations remain valid.
• Responsibility for transport, storage and receipt of goods.

Ask whether the franchisor sells directly or whether you will have a separate contract with the supplier. Do not assume that the party requiring a purchase is also responsible for delivery. Identifying who is responsible for each stage tells you whom to approach with a claim and which document supports the obligation.

Also request information about any discounts, commissions or other benefits the franchisor may receive from purchases across the network. Ask for transparency about these incentives so you can assess the commercial recommendation; do not treat them as an automatic entitlement to a discount.

2. Calculate the true cost of supply

An attractive price may look less appealing once you add freight, transit insurance, refrigeration, handling or losses from expired stock. Compare quotations based on the same quality, pack size, quantity and delivery location. A price for collection from a warehouse is not equivalent to a price that includes delivery to your premises.

For each critical item, calculate the cost per usable unit. If part of an order deteriorates or expires before it can be sold, the remaining units carry a higher cost. Also check whether minimum orders match your storage capacity and expected rate of use.

Ask for a written explanation of how prices are updated: who decides, on what basis and how much notice you will receive. For imported goods, clarify how exchange rate movements and import costs are passed on.

Run a simple test: model an increase in the cost of your main supply item alongside a delivery delay. Check how much your margin falls and which products you would have to stop selling. You do not need to predict the future; you need to identify any dependency that could make the business unviable.

3. Agree a response to supplier failures

A purchasing obligation should come with clear operating rules. Ask for measurable commitments on availability, dispatch times, incomplete deliveries, quality and complaints handling. Avoid relying solely on sales assurances such as “we always have stock”.

It is worth agreeing the following points in writing:

• Receipt and rejection: how to document shortages, damage or quality discrepancies, and the deadline for reporting them.
• Returns: who collects the goods and when a replacement, refund or credit note is due.
• Perishable products: minimum remaining shelf life on delivery and storage conditions.
• Contingencies: the procedure for approving an alternative supplier if the usual one fails.

The alternative must be workable. Establish who approves a replacement supplier, what checks they require and how long they take to respond. Silence from the franchisor does not, in itself, amount to approval: if you want it to have that effect, this must be expressly agreed with legal advice.

Also clarify what happens if a mandatory order cannot be fulfilled because of a stock shortage. Seek contract terms that distinguish between a deliberately unauthorised purchase and a pre-approved emergency measure.

4. Understand the Colombian legal framework before signing

In Colombia, franchising is an “atypical contract”: there is no specific law comprehensively governing this arrangement, nor a general franchise-specific pre-contractual disclosure regime. Supply obligations depend on the agreed terms, within legal limits. The general rules of the Commercial Code and, where applicable, the Civil Code apply, including the duty of good faith in contractual dealings.

Law 1429 of 2010 concerns bringing businesses into the formal economy and creating employment; it is not a franchise law. Nor should a business’s commercial registration be confused with a special mandatory registration of the franchise agreement.

Purchasing restrictions must also comply with Colombian competition rules, including Law 155 of 1959 and Decree 2153 of 1992. Exclusive supply arrangements are not automatically unlawful: assessing them requires an examination of their specific terms and effects. Ask a lawyer to carry out this analysis if the restriction is broad or creates significant dependence on a supplier.

Practical conclusion: before signing, obtain the list of mandatory purchases, a comprehensive quotation and a written procedure for supply failures. If any of these is missing, you do not yet have a sufficient understanding of the costs or risks of sourcing supplies for your franchise.