Late Payments and Royalty Collection in Guatemalan Franchises

When franchising an existing business, setting a royalty is not enough: you need a procedure for collecting it, verifying payments and dealing with arrears without improvising. An organised approach protects your relationship with each franchisee and helps sustain the services provided to the franchise network. This guide explains how to put that process in place before bringing your first franchised outlet on board in Guatemala.

1. Define the collection timetable and its legal basis

Guatemala has no specific law comprehensively regulating franchising. A franchise agreement is treated as a commercial contract without a specifically prescribed statutory form, governed by the Commercial Code, Decree 2-70, and, where applicable, supplemented by the Civil Code, Decree-Law 106. The Industrial Property Law, Decree 57-2000, governs the elements relating to trade marks and other industrial property rights.

Article 677 of the Commercial Code is particularly relevant to managing arrears: a debtor under a commercial obligation is in default from the day after the due date, without any demand for payment being required, unless otherwise agreed. An unclear payment date can therefore become both an operational and a legal problem.

The agreement should distinguish between three milestones:

• Period end: the cut-off date for transactions on which the royalty is payable.
• Report submission: when the franchisee must submit the information needed to calculate it.
• Payment due date: the date by which payment must be made.

Also clarify how non-working days are handled, when a payment is deemed received and what happens if the report arrives late. Do not confuse a statutory or contractual payment deadline with an informal administrative grace period.

2. Create a verifiable record for each period

Every amount collected should be supported by documents, rather than relying on scattered messages. Before offering the franchise, prepare a royalty calculation statement linking the sales report, the contractual calculation, the relevant billing document and proof of payment.

At a minimum, record:

• The franchised outlet and the period covered.
• The calculation basis and any adjustments permitted by the agreement.
• The amount due and its payment deadline.
• Payments received, bank references and the outstanding balance.
• Any discrepancies reported and the response from the person responsible.

If the royalty is based on sales, establish how returns, cancellations and corrections made after the period end are documented. The aim is not to redefine the rate each month, but to apply the agreed terms consistently.

For example, a return recorded after the period end may require an adjustment in the following period. There should be an established rule and supporting evidence that allow the calculation to be reconstructed; the amount should neither be deducted unilaterally nor charged twice.

Where your organisational structure allows, assign different people to prepare the royalty calculation and review the reconciliation. Also consult your accountant about the required tax documents: an internal statement of account does not replace any applicable invoicing obligations.

3. Establish a proportionate follow-up process

Although default may arise without a demand for payment, notifying the franchisee of the overdue amount remains useful for correcting errors and maintaining an evidence trail. Design an internal follow-up process and check that it is consistent with the agreement.

Before the due date, send a reminder stating the period, amount and payment details. This communication should not change the agreed deadline.

When you identify an overdue balance, first check for an unallocated bank transfer, a calculation error or a documented discrepancy. Then notify the franchisee of the balance in writing and request a specific response.

If payment remains overdue, use the notification procedure set out in the agreement. Distinguish an administrative reminder from a formal demand for payment or a notice triggering a period in which to remedy the default.

Do not impose interest, penalties, collection costs or service suspensions as improvised sanctions. Seek legal advice on whether they are permissible and how they should be calculated and applied. Nor should you suspend essential support through an informal decision: you could breach your own obligations.

Keep discussions private. Naming and shaming a franchisee in front of other members of the network is no substitute for a collection procedure and may worsen the dispute.

4. Document exceptions and learn from late payments

Temporary financial difficulties may justify negotiating a payment plan, but the arrangement must be recorded in writing. Identify the acknowledged balance, payment dates, how newly falling-due amounts will be handled and the consequences of failing to comply with the plan. Obtain a legal review to avoid unintentionally changing other terms of the agreement.

Do not conflate a dispute over the calculation with a request for financing. First identify which amount is disputed and which is acknowledged; then decide how to handle each matter under the agreed terms.

Regularly review the timeliness of reports, overdue balances and recurring discrepancies. If several outlets make the same mistake, you may need to improve the reporting template or instructions rather than increase collection pressure.

Practical takeaway: before franchising, have a contractual timetable, a royalty calculation statement and a follow-up process ready. Clear, evidence-based collection procedures allow you to deal with arrears without turning every payment deadline into a fresh negotiation.