Buying a Franchise in India: When Will You Receive Your Sales Proceeds?

When a customer pays at your franchise outlet, the money may not reach your bank account straight away. The brand’s app, a shared payment system or a delivery platform may receive it first. Meanwhile, you still have to pay rent, wages and suppliers. Before investing in a franchise, clarify one key question: who receives the money from each sale, when will you get it, and what can be deducted?

1. Where does the money from each sales channel go?

Ask the brand for more than a sales forecast: request a written explanation of how payments flow. Look separately at cash, card and UPI payments (India’s Unified Payments Interface), as well as orders through the brand’s app and third-party delivery platforms. For each channel, identify who receives the payment and which bank account it ultimately reaches.

Draw up a list of questions:

• Which legal entity will issue the customer’s bill?
• Will payments go directly into your account or reach the franchisor first?
• Who will hold the contract with the payment service provider?
• Who will have access to sales and payment reports?
• Who can authorise customer refunds?

If the entity issuing the bill, the party receiving the money and the party responsible to the customer are different, ask for an explanation of how they relate to one another. Simply saying “this is how all our outlets operate” is not enough.

Payment signage or an app bearing the brand’s name does not, by itself, prove that the money will reach your account. Ask for a demonstration of the proposed arrangement and an anonymised settlement statement from an existing outlet. Check that the bank account details match the entity named in the contract.

2. Clarify payment cycles and deductions

Wording such as “weekly payments” is incomplete. It should specify which days’ sales are included, the cut-off for calculations and when the funds will reach your account. The terms should also cover holidays, technical failures and delays caused by the payment service provider.

The settlement statement should reconcile total sales with the amount you receive. Customer payments, discounts, refunds, platform fees, applicable tax deductions and other adjustments should appear separately. This goes beyond checking how a fee is calculated: it helps you identify where your money has been held up or reduced.

In particular, ask:

• Who bears the cost of customer discounts?
• When can refunds for earlier orders be deducted from a later payment?
• Who is responsible for disputed card payments, and what evidence is required?
• How much money can be held back as security, and for how long?
• How broad is the right to offset other amounts you owe against your sales proceeds?

A right to withhold funds without a limit or time frame poses a serious cash-flow risk. Ask for a clause requiring undisputed amounts to be released while a disputed deduction is investigated. Ask existing franchisees whether payments actually arrive on time or whether they have to send repeated reminders.

3. Factor payment delays into your working capital

An outlet’s profit and its available cash are not the same thing. Even after a sale has been recorded, the money may be tied up in an intermediary system, while payment deadlines for staff and suppliers remain unchanged.

Prepare a week-by-week cash-flow schedule based on the proposed payment cycle. Include the opening bank balance, the money you will actually receive and essential payments due during the same period. Do not treat money collected from customers but not yet received in your account as available cash.

Run the figures for three scenarios: settlement on time, a delay of one payment cycle, and slower sales combined with more refunds. The aim is not to establish a universal cash buffer, but to identify when your outlet’s cash balance will be at its lowest.

If you will need borrowing to cover the gap, confirm the interest cost and available credit limit. Do not treat anticipated borrowing as approved finance. Also ask a chartered accountant to check the timing of sales, receipts and tax liabilities; tax payments cannot always wait until the customer’s money reaches your account.

4. Put information and payment rights in the contract

India has no dedicated central franchise law, mandatory national franchise registration or franchise-specific pre-sale disclosure regime. Do not therefore expect a standardised government disclosure document to provide full details of payment arrangements automatically. General business registrations and compliance with applicable laws are still required.

The Indian Contract Act, 1872 provides the main legal framework for agreements, their performance and remedies for breach. Legal relief may be available in cases of fraud or misrepresentation, depending on the circumstances; not every delay automatically amounts to fraud. Reserve Bank of India rules governing the payment arrangement, as well as tax laws, may also be relevant. A franchisor does not become a regulated payment aggregator merely by receiving money; the actual structure needs to be examined.

Ask a lawyer to ensure the contract specifies payment dates, permitted deductions, deadlines for providing reports, and procedures for reconciliation and correcting errors. Seek the right to download sales records and inspect relevant documents. Agree on advance notice and safeguards for any unilateral changes to the payment cycle.

Practical takeaway: Before signing, trace a sample sale from the customer’s payment through to your bank account. If the route, timing or deductions are unclear, obtain written clarification first, then use it to work out your working capital needs.