Situations regularly occur in practice in which a franchisee, as it is so nicely called, ceases to pay franchise fee, supplies and sometimes even rent to his franchisor for reasons of his own. This can take the form of simply no longer paying invoices within the terms set for this, but also by carrying out so-called reversals in the case of automatic payment arrangements.
Of course, a franchisee may have good reasons to make a payment a little later. Furthermore, there may of course be good reasons not to make a payment, for example if a delivery has not been delivered or has been delivered incorrectly. The franchisee concerned must inform the franchisor in writing in that case or in good time and announce that he is suspending his payment, stating the reasons for this. However, non-payment can also be a strong warning signal, especially when it takes on structural forms.
Franchisees sometimes use the tool of non-payment as an expression of dissatisfaction with the formula. This can also be an indication of business difficulties. Whatever the reason, it is generally important to continuously monitor the payment behavior of franchisees and, if problems arise, to take action at the earliest possible stage. In practice, it often happens that franchisees see their franchisor as a true bank and then fulfill all their financial obligations, except those to the franchisor. An unsolvable situation then arises which ultimately, especially when the franchise agreement is terminated, leads to substantial depreciation on the part of the franchisor. After all, it is difficult to pluck from a bald chicken. The higher the debts rise, the more difficult that situation will be to rectify later on.
The advice is therefore, once again, to keep a close eye on the payment behavior of franchisees and to act immediately if irregularities occur.
Ludwig & Van Dam franchise attorneys, franchise legal advice