Buying a Franchise: Who Pays for Vouchers and Loyalty Rewards?

A customer arrives with a gift voucher bearing the brand’s name, and you provide the service or supply the goods. But someone else has already collected the money. Across a franchise network, shared vouchers and loyalty rewards can drive customer visits, but they also create obligations between independent businesses. Before buying a franchise, assess not only their commercial benefits, but above all who funds what you provide and when you will be paid.

1. Establish who has actually made a promise to the customer

Start by mapping out the basics: who sells the voucher, who takes payment, who has an obligation to the customer and which outlets must accept it. The logo on the voucher does not, in itself, answer these questions. The issuer may be head office, an individual franchisee or another company running the shared scheme.

Ask for a sample voucher, the customer terms and conditions, the loyalty scheme rules and the relevant section of the franchise agreement. Compare them. If the customer terms promise redemption at every outlet but your agreement allows exceptions, there is a practical problem that needs resolving before you open.

Distinguish between three different arrangements:

• Prepaid voucher: someone has already received payment for goods or services to be supplied later.
• Discount coupon: the customer receives a price reduction, the cost of which someone must bear.
• Loyalty reward: an entitlement arises under the scheme’s rules, for example through previous purchases.

For each arrangement, ask whether participation is compulsory, whether you can reject a suspicious voucher or coupon, and who decides on exceptions. A verbal assurance that “it will all be settled” is no substitute for a specific settlement mechanism.

2. Work out what a voucher is worth to your outlet

A voucher’s face value is not automatically the amount you will receive. Check the contractual rules for how reimbursement is calculated: will you receive the full value of the goods or services supplied, an amount after deducting a discount, or some other agreed payment? Also establish who funds discounted vouchers sold during head office promotions.

Ask for an anonymised example of an actual settlement statement. It should allow you to trace individual transactions, deductions, adjustments and the final payment due date. If head office simply offsets vouchers against your regular payments, check what happens when the value of vouchers you accept exceeds those payments. Without a rule requiring the balance to be paid out, you could be left with a long-standing unpaid receivable.

Work through at least these scenarios:

• the customer spends less than the voucher’s value;
• the customer pays the remaining balance by another method;
• the voucher is redeemed in stages at several outlets;
• the transaction is subsequently cancelled or becomes the subject of a complaint;
• the system records the same redemption twice.

Ask an accountant to assess the VAT treatment too. Czech Act No. 235/2004 Coll., on Value Added Tax, distinguishes between single-purpose and multi-purpose vouchers; this distinction affects when VAT becomes chargeable. A voucher’s marketing name does not determine its tax treatment. The documents issued must therefore reflect how the scheme actually operates.

3. Separate customer rights from settlement with head office

The Czech Republic has no specific franchise law. A franchise agreement is generally an agreement not specifically defined as a contract type under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Nor is there a specific mandatory pre-contractual disclosure document or a requirement to register franchise agreements. General rules on pre-contractual dealings and contractual obligations do, however, apply.

When dealing with customers, the Civil Code’s consumer protection provisions and Act No. 634/1992 Coll., on Consumer Protection, are also relevant. An internal agreement about who ultimately bears the cost does not, by itself, alter a customer’s statutory rights. It is therefore important to identify who acts as the seller or service provider and who handles each particular complaint.

Ensure the contractual arrangements include a procedure for receiving complaints, passing on the necessary information and settling the financial consequences. Address complaints about a poorly delivered service separately from problems with the voucher itself. These are different situations, and responsibility may lie with different businesses.

A franchisee normally enters into a relationship with head office as a business, not as a consumer. You should therefore not assume that the same rules protecting a customer at the till will protect you.

4. Agree procedures for system outages and the end of the scheme

Vouchers may remain in circulation even after a scheme changes. Before signing, clarify who approves new campaigns, how much notice you will receive and whether your obligation to provide rewards at your own expense can be extended without your consent.

The agreement or a binding schedule should also cover outages of the voucher verification system. Staff need to know whether they can accept a voucher manually, how to check its validity and who bears any loss if it is misused. Otherwise, they will be left choosing between turning a customer away and providing goods or services for which you may not be reimbursed.

For the end of the franchise relationship, require a clear date after which you will no longer accept vouchers, a process for informing customers and a deadline for final settlement. Also establish what will happen to amounts owed to you if the issuer stops paying. A promise of reimbursement at a later date is not, in itself, security for payment.

Practical takeaway: Before buying a franchise, ask to be shown the entire process for a single voucher, from sale through redemption to the money reaching your account. If you cannot identify the responsible party, the amount payable and its due date, the arrangements are not yet ready to sign.