Factoring Companies Guidebook
Franchises
Definition
Businesses that trade using a certain name under license to the main company. While the master franchisor exercises control over the sale and retention of the licenses, ownership and management usually vests locally with the franchisee.
Concerns
Invoicing arising out of franchising may constitute:
The purchase price of the franchise to the franchisee - This is usually required in advance and are the subject of many contractual obligations which may not be fulfilled and therefore subject to a potential future reclaim.
Sales to associated company's e.g. between franchises. These are not easily distinguished because ownership of each franchise may be different. Although they may all feed records and information through to the ultimate franchise holder, there may be no legal obligations between the individual franchises.
Straightforward sales to the end customer - These customers may be private individuals.
Royalties due to turnover - These should be capable of being supported by all the necessary documentation but could be subject to dispute, offset due to deductions for management charges etc.
The franchisees may merely act as agents generating sales, with the necessary invoicing and collection work operated by the franchisor. In these cases it would be critical to confirm who actually has title to the goods or service and debt and who has the quality control of these records. Cases have been seen where the franchisee, while operating the business in this way, still retains title to the debt. For any potential Invoice Finance agreement to operate with the 'administrator' of those debts, the franchisee would initially need to assign those debts to the 'administrator'.
Franchises also tend to operate under a license agreement, for a fixed period of time, in a strict geographical area and failure to conform to the license obligations may result in the license being revoked without notice.
Identification
Determine from the Client whether it operates as a franchisor or franchisee. Review the nature of the debt for any indications of franchise agreements. Review the sales and purchase ledgers for any names similar to that of the Client. Franchise operators tend to utilise the same basic name, possibly with a variation according to the geographical area of operation.
Treatment
Agreements and contracts should be fully understood and examined before funding is agreed.
