Franchising in Hong Kong: Defining Responsibility for Gift Voucher Redemption and Settlement Across Outlets

Should gift vouchers sold by existing company-owned outlets also be accepted by new franchise outlets? Customers seeing the same branding often expect to use vouchers across the network. Yet the franchisor and franchisees are independent businesses: the company receiving payment upfront may not be the one that ultimately provides the service. To maintain trust within the franchise network, businesses should treat gift vouchers as a payment and fulfilment arrangement requiring its own design before recruiting franchisees.

1. Clarify who issues vouchers and who is responsible to customers

Start by taking stock of existing cash vouchers, vouchers for specified services and electronic gift vouchers. Record the issuing company, sales channels, participating outlets, expiry dates and outstanding unredeemed balances. Do not confuse free promotional coupons with paid-for gift vouchers: the former usually offer discounts, while the latter involve obligations for which payment has been received but fulfilment remains outstanding.

For each voucher type, answer three questions: who receives the money, who does the customer buy from, and who is responsible for arranging redemption? Vouchers issued centrally by the franchisor, vouchers sold by franchise outlets on its behalf, and vouchers issued independently by franchisees are three distinct arrangements. Describing them simply as ‘valid at all outlets’ is not enough.

Hong Kong has no franchise-specific legislation, statutory franchise registration requirement or standardised pre-contract disclosure regime. Franchise relationships are primarily governed by common law contract principles and applicable legislation, including the Misrepresentation Ordinance. Mainland China's franchise filing and disclosure requirements do not apply to domestic franchising in Hong Kong. However, selling gift vouchers to customers still requires a separate review of general laws, including consumer protection requirements. A franchise agreement cannot replace obligations owed to customers.

2. Set out redemption commitments and settlement formulas together

The franchise agreement should specify which voucher types franchise outlets must accept, when acceptance begins and whether this includes vouchers sold before the business began franchising. If the franchisor received payment for older vouchers but a new franchise outlet must supply the goods, the franchisor's reimbursement obligations should be expressly stated. Do not assume that franchisees will absorb the cost.

Consider setting out the following in a schedule to the agreement:

• Settlement basis: Whether reimbursement is calculated using the voucher's face value, the amount actually received from its sale or an agreed reimbursement rate for the service.
• Allocation of differences: How proceeds and costs are shared when vouchers are sold at a discount, customers pay a top-up or vouchers are partially redeemed.
• Payment procedure: Settlement cycles, reporting cut-off dates, payment deadlines and the process for raising disputes.
• Related fees: How voucher sales and redemptions count towards the basis for calculating management fees, to avoid charging twice for the same transaction.

For example, if the franchisor sells a service voucher at a discount but the franchise outlet provides the service at its standard price, the parties must agree in advance who bears the discount. Avoid merely stating that settlement will follow ‘head office policy’ without a verifiable formula and a payment deadline.

3. Test redemption controls and payment flows before rolling out acceptance

Before introducing cross-outlet gift vouchers, use company-owned outlets to simulate the accounts of separate operators. Test whether voucher issuance, payment collection, redemption and reimbursement can be matched transaction by transaction. The trial should cover more than successful code scanning: it should also test partial redemption, insufficient balances, repeated presentation of the same voucher and system outages.

Operating procedures must specify when redemption is recorded as complete, who may reverse it and how an audit trail of corrections is retained after an error. Franchise outlets should have access to their own redemption records so they can reconcile them against the franchisor's reports. Disputed transactions should also be handled separately from undisputed amounts, rather than allowing an entire settlement batch to be held up indefinitely.

The franchisor should regularly compare outstanding redemption obligations with available funds, rather than treating all voucher sales proceeds as freely available cash. Whether to establish a dedicated account, reserve funds or other safeguards should depend on the arrangement and its risks. It would be inappropriate to claim that all gift vouchers in Hong Kong benefit from a statutory trust or deposit protection.

Using electronic vouchers does not, in itself, necessarily bring an arrangement within a particular payment regulatory regime. However, where stored value and payments across separate operators are involved, legal advisers should assess whether the Payment Systems and Stored Value Facilities Ordinance applies. The label ‘brand gift voucher’ alone does not determine whether a licence is required or an exemption applies.

4. Plan ahead for the end of voucher acceptance and unused balances

If a franchise outlet leaves the network, the franchisor stops issuing vouchers or settlement problems arise, distinguish between the date voucher sales stop and the date redemption stops. Specify who must notify customers, update the list of participating outlets and deal with outstanding redemption obligations.

Internal agreements can allocate costs and responsibility for recovering payments, but they do not automatically extinguish customers' existing contractual rights. If customers need to redeem vouchers elsewhere, receive refunds or accept changes to usage conditions, review the original terms and applicable law first, rather than unilaterally declaring existing vouchers invalid.

Practical takeaway: Before formally recruiting franchisees, prepare a responsibility matrix covering payment collection, fulfilment, redemption recording and reimbursement. Then simulate one cross-outlet redemption and one scenario in which an outlet stops accepting vouchers. Only promise customers network-wide acceptance once every stage has a responsible party, a record-keeping process and a payment arrangement.