QFA: Clear criteria for franchise discounts and grace periods

Discounts, grace periods and other special terms offered to franchisees should have a clear basis. This is the central message of guidance from the Quality Franchise Association (QFA) for businesses preparing to franchise in the Philippines: every exception needs a reason, defined limits and proper approval to protect trust across the franchise network.

Fair treatment does not mean identical terms

According to the QFA guidance, business owners need to establish when they may offer special terms to a franchisee. A general statement that the system is fair is not enough without criteria explaining who may qualify for concessions and why.

Differences in contractual terms are not automatically prohibited. Equally, a difference should not be assumed acceptable simply because the franchisee has signed the agreement. Decisions should be guided by sound reasons, clear criteria and legal review.

This distinction matters to the franchise network. Requests for grace periods or additional support need to be assessed against the circumstances and obligations of both parties, rather than simply the desire to secure a new franchisee quickly. The guidance aims to prevent promises that lack clear limits or could harm other outlets.

Use existing rules as the starting point

The Philippines has no single comprehensive law covering every aspect of franchising, according to the guidance. However, specific regulations need to be considered before special terms are set.

These include Executive Order No. 169, series of 2022. It sets out mandatory provisions for agreements within its scope involving franchisees that are micro, small and medium-sized enterprises. These include provisions on non-discrimination, fee disclosure, both parties’ responsibilities and the duration of the agreement.

There are also related obligations to register agreements with the Department of Trade and Industry (DTI). The Civil Code also applies to contracts. The QFA therefore recommends consulting a lawyer to establish how these requirements apply to the specific franchise offering.

The guidance does not present these as new regulatory changes. Instead, it uses existing rules as the basis for carefully developing a policy on exceptions.

Define what can be changed

The QFA suggests drawing up a list of terms that cannot be relaxed and those that may be adjusted following a review. For example, required safety procedures or proper use of the brand should not be set aside in exchange for a quick signing.

Changes to payment schedules or additional support for opening an outlet, meanwhile, may be considered. This is subject to the support being deliverable and there being a clear reason for the concession. These are examples of matters that may be reviewed, not automatic entitlements for every applicant.

For each potential exception, record the following:

• Scope: What exactly can be changed?
• Reason: What circumstances justify the change?
• Eligibility: Which applicants or franchisees may benefit?
• Limits: When will the special terms end?
• Authority: Who can approve the exception?

Before making a decision, the guidance also suggests asking whether the response would be the same if another franchisee were in the same circumstances. This can help identify potential favouritism before it becomes a complaint.

Record the decision and formalise the change

A simple record of requests and decisions is also important. It should set out the concession requested, relevant obligations, supporting evidence, reasons for approval or refusal, and any deadlines.

Agreed changes should not remain verbal. If a change affects the contract, the QFA recommends having a lawyer prepare an appropriate written amendment and ensuring that both parties understand and formally agree to it.

It is also necessary to clarify whether the terms are temporary or long-term. Once the grace period ends, will the standard payment schedule resume, or will there be a new obligation? This clarification avoids vague promises to discuss a specific financial liability at a later date.

Records should be reviewed regularly. If the same request keeps recurring, the standard offering itself may need adjusting.

Practical guidance: Before taking on your first franchisee, prepare written criteria for discounts, grace periods and other special terms. Apply a consistent assessment process, establish clear approval authority and document the reasons for every decision.