Buying a franchise: Understand payment deadlines and interest

When you join a franchise network, knowing how much the fees are is not enough. You also need to know when payments are due, what information invoices must contain and what happens if there is an error or a delay. A clear payment procedure makes it easier to plan your operations and reduces the risk of an invoice dispute escalating into a conflict over the entire business relationship.

Map out payments before signing

Ask the franchisor for a complete breakdown of the payments required under the agreement. Focus not just on the amounts, but also on what triggers each payment. An initial franchise fee might, for example, fall due on signing, while payment for training or access to systems may be due at other points.

Create a payment calendar with the following details for each item:

• Who issues the invoice, and who receives the payment?
• Is payment made in advance or in arrears, and what period does it cover?
• What triggers invoicing?
• How long is the payment period, and how is it calculated?
• Is the amount stated inclusive or exclusive of VAT, and how is VAT treated?
• Can there be subsequent adjustments, and when?

Check in particular whether several large payments fall due at the same time. A seemingly manageable monthly cost can have a different impact on cash flow if it is charged quarterly in advance alongside other charges.

It is also worth asking for an anonymised sample invoice and an example of a subsequent adjustment. This will show whether you and your bookkeeper can understand and manage the procedure before you are bound by it.

Understand Danish payment rules

Denmark has no specific franchise legislation, no separate registration scheme for franchise agreements and no specific mandatory disclosure document for prospective franchisees. The usual business registration requirements still apply. Franchise agreements are governed primarily by the Danish Contracts Act and general principles of contract law.

The absence of a specific disclosure document does not mean that material financial information can simply be concealed. General principles concerning good-faith disclosure and liability during contract negotiations may be relevant if misleading or insufficient information is provided.

The Danish Interest Act is central to late payment. It includes rules on payment periods, late-payment interest and certain debt recovery costs. Some provisions restrict freedom of contract in business-to-business dealings. You should therefore not assume that every interest or fee clause is valid simply because it appears in the contract.

Ask your adviser to check when interest can start accruing, which rate applies and what payment reminder fees or debt recovery costs may be charged. Avoid wording that merely refers to the franchisor’s terms in force from time to time without making the implications clear.

Other general legislation, including the Danish Competition Act and Marketing Practices Act, may apply to other aspects of the relationship. These do not, however, remove the need for specific payment terms.

Agree a procedure for errors and disputes

An invoice may cover the wrong period, include a duplicate charge or charge for a service you do not believe you ordered. Agree in advance where to send invoice queries or objections, what supporting evidence is required and who will handle them.

A workable procedure should explain:

• How the franchisor will acknowledge receipt of an objection.
• When you can expect a response explaining their position.
• How an error will be corrected through a credit note or refund.
• How the undisputed portion of the invoice should be paid.
• How the disputed portion will be handled while the matter is investigated.

The last point is particularly important. Raising an objection does not necessarily entitle you to withhold payment. Explicitly agree whether a reasonably substantiated objection can put collection, interest or other consequences on hold. Do not withhold payment without understanding the agreement and obtaining appropriate advice.

If payments are collected automatically, the procedure should also explain how you will receive an itemised breakdown before the payment is taken and how an incorrect collection will be corrected. Automatic payments should not make errors harder to spot or document.

Make the payment terms work in practice

Financially significant terms should appear in the signed agreement or a clearly linked payment schedule. These include payment periods, due dates, interest and the consequences of late payment. Practical details, such as the email address for invoices and the contact person, can be managed more informally, but should not be used to change payment terms indirectly.

Also agree how changes will be notified and approved. Distinguish between a new invoicing address and a switch from payment in arrears to payment in advance: the latter shifts a financial burden and should not be treated as a purely administrative change.

Before signing, work through three hypothetical situations with the franchisor: a correct invoice arrives late, an invoice contains an error, and an automatic payment fails. If both parties can explain the next steps by referring to the agreement, the procedure will be easier to use in practice.

Practical takeaway: Put a payment calendar, clear interest terms and a written procedure for invoice errors in place before signing. You need to know both when money will leave your account and what to do if a charge is incorrect.