Franchising in Mexico: how to agree commission payment terms

Not all franchises generate income by buying and reselling products. In some models, the franchisee receives a commission on transactions completed or services provided. Before entering the Mexican franchise market, you need to understand how a sale turns into funds available to your business. An attractive percentage is of little use if the basis for calculating it, any deductions or the payment date remain undefined.

1. Identify which transactions earn you commission

Start by asking for a complete walkthrough of a transaction: who deals with the customer, who concludes the sale, who issues the invoice, who collects payment and who delivers the product or provides the service. Do not assume that your outlet handles all these functions.

Next, establish what event triggers your entitlement to commission. This might be when the customer enters into a contract, makes payment, receives the goods or has the service completed. These are different points in time, and the distinction affects both your income and how long you will need to finance the transaction.

Ask for written answers to these questions:

• Which products, services and sales channels earn commission?
• How is a transaction attributed to your outlet?
• What happens if you assist a customer but they ultimately buy through another channel?
• Do subsequent purchases by the same customer earn a new commission?
• What evidence do you need to demonstrate your involvement?

Ask for examples of complete transactions and borderline cases. The sales explanation must match the contract and its schedules, rather than relying solely on promises made by the person selling the franchise.

2. Turn the percentage into a formula you can check

You should be able to recalculate a commission using supporting documents. To make this possible, the contract must identify the calculation base, the applicable percentage or rate, and every permitted adjustment.

Clarify whether the calculation base includes or excludes taxes, delivery charges, discounts and other charges. If rates vary by product, channel or volume, request a table with a date and version number. The terms should also specify what happens when a transaction qualifies for more than one category.

A useful framework for checking the calculation is:

Commission for the period = total commission earned on individual transactions − expressly agreed adjustments.

This formula does not replace the contractual wording: it helps identify any elements still missing. The commission on each transaction must have a verifiable calculation base and rule.

Pay particular attention to returns and cancellations. Ask whether they cancel the whole commission or only part of it, how long they can give rise to adjustments, and what supporting evidence must be provided. Avoid accepting deductions described only as ‘other expenses’ or ‘administrative corrections’.

Also distinguish your commission from your outlet’s profit. Payroll, rent, tax liabilities and other costs may still need to be paid out of that income. An agreed commission does not amount to a guaranteed profit.

3. Agree payment arrangements you can check and rely on

Even if the calculation is clear, you need to know when you will receive the money. Distinguish between three dates: the end of the accounting period, the delivery of the commission statement and the payment due date.

Ask for each commission statement to show, at a minimum:

• The reference and date of each transaction.
• The calculation base used and the corresponding commission.
• Cancellations, returns and other adjustments.
• Amounts paid and outstanding.
• The expected date of payment into your account.

Also clarify the invoicing requirements and who is responsible for meeting them. It is worth checking with your accountant that the payment arrangements in the contract are consistent with the applicable tax treatment, without confusing a commercial commission statement with a tax invoice.

Negotiate a procedure for disputing discrepancies: the communication channel, documents required, response deadline and method for correcting errors. Propose that a disagreement over some transactions should not delay payment of undisputed amounts.

If the franchisor can deduct sums you owe it from your commissions, ask for that right to be clearly limited. The terms should identify the types of deduction permitted, their justification and how they will appear on the statement.

4. Put the rules into your Mexican franchise contract

In Mexico, the Federal Law on the Protection of Industrial Property specifically regulates franchises. Article 246 requires the contract to be in writing and to include, among other things, the criteria and methods for determining franchisees’ profit margins or commissions.

The same article also covers policies, procedures and time limits relating to reimbursements, financing and other agreed payments or consideration. This does not mean that the law sets a commission percentage or guarantees income: the specific terms must be defined in your agreement.

Before signing, ask a lawyer to compare the contract with the tables and examples you have received. Check how the schedules are incorporated, which document takes precedence if there are contradictions, and how the terms can be revised by mutual agreement.

Practical takeaway: insist on a sample commission statement and recalculate it yourself. If you cannot explain how much you would receive, why and on what date, an essential part of the franchise purchase still needs to be agreed.