Debt Collection And Franchising

With businesses coming in all shapes and sizes – and structures, one of the structures a business can take is a franchise. At the time of writing, there are around 48,000 franchise businesses in the UK, covering industries from food and beauty to providing care and even professional services like debt collection!

The franchise model is heavily modelled towards growth and favours the franchisor (or brand owner) while allowing a franchisee to trade as the brand. Unsurprisingly, this makes things all the more complicated if you are owed money by a franchisee. So today we wanted to talk a bit about how the concept works, and what you might need to do.

What Is A Franchise?

A franchise is a method of distributing products or services involving a franchisor, the owner of the business or brand trademark, and a franchisee, someone who has bought the rights to trade under that brand. A franchisee runs their business on their own, with a varying range of support from the franchisor. Some franchisors provide full brand guidelines, marketing support and budget, while others will provide minimal support and allow the franchisee more freedom.

Franchises can come in all shapes and sizes, with business models ranging from coaching to fast food, beauty products and even accountants. Many people are drawn to the franchise model as it provides a ready-made ‘business in a tin’. Franchisees are provided with a business model that’s been proven to work, a brand and a methodology, allowing them to hit the ground running with their business. In return, they are required to pay a franchise fee and abide by any rules set out in their contract. Including ensuring they pay all debts.

Debt And The Franchise Model

A good franchise will be indistinguishable from a corporate site when visited by a customer. But being able to make that distinction is important when it comes to debt collection. Even though a franchisee is operating on behalf of the brand owner, and they may be compelled to do things in a certain way, or to buy certain items, they are still ultimately responsible for the debts they incur. Which means if they have failed to pay you for goods or services you have provided, you can pursue debt collection against them.

It’s important to remember that even though a franchisee may be trading as a well-known brand, that doesn’t mean they are able to pay their debts when they fall due. In fact, a very common delaying tactic used by franchisees is to claim their franchisor is responsible for payment. In 99% of cases, this isn’t true, and the franchisee is ultimately responsible. In the 1% of cases the franchisor really is liable, then the franchisee has to make that clear to you before you provide goods or services.

Collecting From Franchisees

So what do you do if you’re owed money by a franchisee? Simple, do the same things you would with any other client who owes you money. Carry out written and telephone communications to try and open up a conversation and ensure there hasn’t been a simple misunderstanding. If you find that they are still not paying, then you can proceed down the more official channels and, if needed, threaten legal action.

In many cases the threat of court proceedings will get things moving, but in the case of franchisees, it’s an even more powerful motivator. A County Court Judgment can make the difference between a franchise being renewed or withdrawn, so franchisees are well motivated to avoid it by any means possible. Since the franchise industry is still largely self-regulating within the UK, disputes are rarely brought to trial and debt issues are resolved either with prompt payment or action from the franchise owner to settle the debt and manage the cause themselves.

At Debtcol we support businesses of any shape or size to collect debts they are owed, regardless of who the client is. We have worked with businesses to collect debts from franchisees, and if you’re struggling to collect money from a client who is a franchisee of any type, we would be happy to help. To find out more, just get in touch with the team today.