Buying a franchise: check the terms for remitting customer payments

The customer pays today, but when will your business have access to the money? In a franchise network, a shared online shop, booking platform or payment system can make selling easier, but customer payments may pass through the franchisor or an external service provider. Before buying a franchise, understand the entire payment chain. Making a sale does not necessarily mean you can use the proceeds to pay wages, rent and suppliers' invoices.

1. Establish who sells and who receives the money

Start from the customer's perspective: which business are they buying from? The sign above the shop or the shared branding of an online service does not, on its own, determine who the seller is. Check which business is named in the order confirmation, receipt and terms of sale. Separately, establish whose name the payment services agreement is in and which account receives the payment first.

The payment recipient is not necessarily the same business as the seller of the product or service. For example, the franchisor may collect payments on behalf of the franchisee. Under another arrangement, the franchisor sells to the customer and buys the goods or services from the franchisee. These models can have different implications for invoicing, accounting and who the franchisee expects payment from.

Ask for a written description of each sales channel in use:

• Who is identified to the customer as the seller?
• Who receives the payment, and on what basis?
• Who is obliged to remit the money to your business?
• What event triggers your entitlement to payment?
• Where can you track the progress of an individual payment?

Review the outlet's payment terminal, online shop, app and any consolidated billing for business customers separately. Do not assume that every channel uses the same model. Ask your accountant to assess the arrangement before you sign, particularly if the agreement identifies the franchisee as the seller but the customer-facing documents say otherwise.

2. Turn promises about remittances into precise contractual terms

The phrase “we remit payments regularly” is not enough for cash flow planning. The agreement should specify the remittance period, its cut-off date and the payment due date. Also establish whether the stated date means the date the payment instruction is issued or the date the money reaches your business account. Weekends and public holidays can affect the actual timing.

Ask to see a sample report linking customer payments to the amount payable to the franchisee. It should allow you to distinguish sales, refunds, payment processing fees, other deductions and adjustments relating to earlier periods. A net figure alone does not tell you whether all sales have been included.

A remittance must not be reduced to a net figure you cannot verify. If franchise fees are deducted directly from customer payments, agree on an itemised breakdown showing the basis for each deduction. Also check whether the agreement allows the franchisor to set off other amounts it claims you owe against your remittance, including claims whose basis or amount you dispute.

Negotiate a procedure for handling errors: whom you notify about a missing payment, how quickly the matter will be investigated and when the error will be corrected. Aim to ensure that investigating one transaction does not hold up the entire remittance. Also record how changes to the remittance schedule will be communicated and under what conditions the schedule can be changed.

Test the arrangement with a practical example. Ask the franchisor to show how a typical purchase moves from the customer's payment to the remittance report and into your business bank account. Do the same for a refund and a failed payment. This will expose unclear terminology before it leads to a financial dispute.

3. Assess the impact of delays and insolvency

The interval between remittances is also a funding issue. Your business may have to pay employees and suppliers before money already paid by customers reaches its account. Prepare your cash flow forecast using actual remittance dates, rather than sales dates alone.

Alongside this, model a disruption in which one remittance is delayed. Check which payments fall due while you are waiting and how the business would meet them. The aim is not to predict problems at the franchisor, but to identify how dependent your own operations are on a single payment chain working properly.

Also ask whether money belonging to franchisees is kept separate from the payment recipient's own funds, and what arrangements underpin this. A separate tracking account or the words “client funds” in an agreement do not, by themselves, demonstrate that the money would be protected if the recipient became insolvent. Assessing that protection requires a review of the actual contractual and account arrangements.

If the franchisor receives substantial payments belonging to your business, ask a lawyer to clarify your position in the event of bankruptcy. This may involve assessing, for example, whether your business has a claim against the franchisor or an entitlement to specific funds held separately. Also check whether the payment service provider can withhold funds and who bears the consequences if it does.

4. Ensure payments can be verified and understand the legal framework

Finland has no specific franchising act, statutory registration of franchise agreements or prescribed franchise disclosure document. The contractual relationship is governed by legislation including the Finnish Contracts Act and the Unfair Business Practices Act, as well as other general legislation where applicable. Precise contractual terms are therefore important, although mandatory legal provisions cannot be overridden by agreement.

The Finnish Franchising Association's Code of Ethics is a form of self-regulation binding on its members, not legislation or official approval of a payment arrangement. Establish whether the franchisor is committed to the code, but still review the remittance terms separately.

The Finnish Accounting Act also applies to a franchisee's business. A shared system does not remove your business's bookkeeping obligations. With your accountant, make sure you receive adequate supporting documents and reports for transactions and can reconcile sales with payments received into your bank account. Agree on access to these records if the system changes or the franchise relationship ends.

Finally, record the timetable for the final remittance and the grounds for any amounts withheld. Outstanding payments must not be left without an agreed reconciliation procedure simply because the franchise relationship has ended.

Practical checklist: Do not sign until you know who holds your money, when you will receive it, what can be deducted and how you can verify every remittance.