Franchising in Denmark: Agree a clear payment procedure

When your existing business becomes a franchise network, payments between independent businesses need to work without daily ad hoc arrangements. Even an agreed franchise fee can cause problems if the invoice arrives late, the basis for calculating it is missing, or nobody knows how to correct an error. A clear payment procedure protects both the franchisor’s cash flow and the franchisee’s ability to check their bills.

Separate payment terms from day-to-day administration

Denmark has no specific franchise law and no separate registration scheme for franchise agreements. The Danish Contracts Act and general principles of contract law provide the legal framework for the agreement. The Danish Interest Act is relevant to late payments, while legislation including the Danish Competition Act and Marketing Practices Act may affect other aspects of the relationship.

There is also no specific statutory franchise disclosure document. However, general principles requiring good-faith disclosure and governing liability during contract negotiations mean that material financial information should not be concealed. Prospective franchisees should therefore know the payment terms before entering into the agreement.

Set out the key financial terms in the franchise agreement: the payment period, when payments fall due, any interest and the consequences of non-payment. The practical workflow can be covered in an accompanying procedure. This might specify, for example, who receives invoices, how information is submitted and whom to contact about errors.

Do not let an administrative update effectively change the agreement. A new email address for invoices is not the same as a shorter payment period. The latter should be handled under the agreement’s provisions for amendments, rather than simply announced as an updated routine.

Describe the full process from reporting to payment

The payment procedure must be usable by both the franchisee and the employee or bookkeeper carrying out the work. Set out the process as specific actions rather than general requirements to pay on time.

For turnover-based payments, the procedure should specify:

• Who submits the information and through which system.
• Which period the information covers and when it must be submitted.
• How the franchisor checks and uses the submitted information.
• When the invoice is sent and where it is delivered.
• How errors, credit notes and subsequent adjustments are handled.

Refer to the agreement’s definition of the calculation basis rather than introducing a new definition in the payment procedure. Otherwise, the bookkeeping team may end up using a different interpretation of turnover from the one the parties agreed.

Make invoices easy to reconcile. Franchisees should be able to see which period a charge covers, what type of payment it relates to and how the amount has been calculated. For example, keep ongoing franchise fees, supplies of goods and separately ordered services clearly distinct.

Test the process using a mock month-end before the first outlet opens. Ask someone who did not write the procedure to work through it. If they have to guess a deadline or search old messages for an explanation, the procedure is not ready.

Set out a clear process for dealing with invoice errors

An invoice dispute is not necessarily a payment problem. It may arise from a duplicate entry, a missing credit note or a disagreement over a particular delivery. Establish a separate process for investigating errors.

Designate a single point of contact for invoice queries. Ask franchisees to provide the invoice number, the disputed amount and their reasons for disputing it. Agree who within the franchisor’s organisation can approve a correction and how the franchisee will receive a response.

Also explain how the undisputed part of an invoice should be handled. One practical solution may be to pay that part on time while the parties investigate the remainder. This must be an agreed approach, not an assumption that any dispute automatically defers the entire payment.

Keep a central record of corrections. Repeated errors often point to unclear instructions or poorly configured systems. Use them to improve administration across the franchise network rather than simply correcting individual invoices.

Handle arrears consistently and proportionately

Establish an internal sequence for following up overdue payments: first check the amount due and the payment records, then contact the franchisee, and finally assess whether formal action is needed. An overlooked bank transfer should not trigger the same response as repeated non-payment.

The Danish Interest Act regulates, among other things, late-payment interest and certain costs associated with overdue payments. Have the payment terms reviewed by a legal adviser to ensure that interest, payment reminders and any debt recovery costs are handled correctly. A charge does not become lawful simply because it is called an administration fee.

Any payment plan should be documented, including the amounts, deadlines and consequences of failing to comply. Also specify whether the plan covers only the existing arrears, with new invoices continuing to fall due as normal.

Do not automatically use business-critical support or access to systems as leverage. Such measures require a case-specific assessment of the contractual basis and may increase losses for both parties.

Practical takeaway: Finalise and test a single, coherent payment procedure before the first franchisee opens for business. Everyone should be able to follow a charge from reporting through to invoicing, correction and payment without relying on ad hoc verbal instructions.