Sep 28, 2023

Troublesome Transactions: Understanding the Top 4 Challenges Facing Initial Franchise Fee Collection

Written by Kaleigh Wells

As a franchisor, collecting an initial franchise fee can be a critical factor in your success - yet it isn’t always as straightforward and simple as you might expect. Despite planning to collect all relevant fees at designated intervals, there are common issues that arise during the process of collection – packet delays, delayed payments, or non-payments by some franchises. To help equip you for managing these challenges efficiently and effectively, here we discuss the 4 most problematic issues franchisors face with initial franchise fee collections and how best to approach them.


1. Delays in Payment

When someone wants to become a franchisee, there is a fee they need to pay to the franchisor. This fee is outlined in the franchise agreement, which the lead signs before becoming a franchisee. Currently, the payment can be made by check, wire transfer, ACH, or credit card, but there may be some back and forth between the franchisor and franchisee to collect the payment. It is important to note that until this fee is paid, the process of opening the location cannot begin. This means that delays in collecting the payment also delay the timeline for opening the location and creating revenue for the franchisee. It also means that the franchisor's ability to collect royalties is also delayed.

 

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Recognizing these challenges, it is crucial to leverage technology that not only aids in automating payments but also accelerates the process. A robust digital payment system can streamline fee collection by reducing manual tasks, thus minimizing errors and delays, and ensuring efficient, timely payment. It not only enhances the franchisors' cash flow but also improves relationships with franchisees by fostering a sense of trust and reliability.

 

 

 

 

2. Poor Visibility

Franchisors often struggle with maintaining visibility into the payment process once a payment has been initiated. Despite initiating the payment, it's often challenging to track whether the payment has been received, deposited or is still pending, owing to various modes of payment and their associated processing timeframes. This lack of insight into the payment process also extends to the entire Accounts Receivable (AR) lifecycle, making it difficult for franchisors to manage their cash flows effectively. Having clear visibility into the full AR lifecycle is crucial for accurate revenue forecasting and financial planning. A comprehensive payment platform provides real-time insights into the status of transactions, aiding franchisors in tracking the payment process from initiation to deposit. Thus, enabling franchisors to promptly address any payment delays, ultimately preventing any potential cash flow issues. Clear visibility ensures that resources for the franchisor are available when needed for business operations and expansion.

3. Hidden Fees:

Hidden fees can prove to be a significant challenge for franchisors, especially those accepting various payment methods and dealing in multiple currencies. When franchisees use different modes of payment like credit cards, wire transfers, or ACH, each method has its associated processing fees that the franchisor must bear. Moreover, if the franchise operates globally and transactions are made in different currencies, foreign exchange fees can add further to the cost. Such fees might not be apparent at the outset, but they can accumulate over time, affecting the profitability of the franchise. Franchisors must be aware of these potential costs and factor them into their financial planning to ensure a successful and profitable franchise system.

Integrating an international payment processor into your franchise management software can significantly mitigate the challenges franchisors face regarding initial franchise fee collections, particularly in terms of hidden fees. Franchisors can tackle currency conversion issues head-on and be aware of hidden fees upfront, reducing the likelihood of unexpected costs.

 

 

4. International Currencies:

 

Handling transactions in international currencies adds another layer of complexity to the payment collection process. Exchange rate fluctuations can significantly impact the actual amount received by the franchisor, especially when dealing with large initial franchise fees. For instance, a franchisee in the UK might pay the fee in pounds, potentially causing a discrepancy in the amount the US-based franchisor receives due to fluctuating currency exchange rates. 

 

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To navigate this challenge, franchisors can leverage an international payment processor. These functions allow franchisees to pay in their local currencies while enabling the franchisor to receive and reconcile the fee in US dollars or currency of choice. The key is utilizing a processor that provides real-time conversion rates, enabling accurate collection of fees in the franchisee's local currency, with the franchisor receiving the exact equivalent in USD. This solution not only simplifies the process for both parties but also mitigates the risks associated with currency fluctuation and contributes to a smoother, more predictable fee collection process.

 

The Flywire Integration:

 

Franchisors, franchising CDOs, and franchising CFOs need a more streamlined way to manage payment collection to prevent the above-mentioned delays and obstacles. With FranConnect's Flywire integration, franchisors are able to collect signatures and payments all in one place. Thus, improving operational efficiency and decreasing DSO for franchisors with top-tier settlement speeds and contract management tools. By integrating Flywire into the FranConnect platform and into the initial franchise fee collection process, franchisors can ensure a smoother, more efficient, and cost-effective operation.

How it works:

  1. Contract Sent

Franchisor requests a signature from the franchisee in FranConnect

  1. Franchisee Receives Contract Via Email

Franchisee signs IFA and is presented with a payment link

  1. Franchisee Pays

Franchisee is presented with the Flywire payment experience

  1. Deposit & Reconciliation

Funds are reconciled and deposited into the franchisor’s account

 

 

 

 

In the rapidly evolving world of franchising, staying ahead of the curve means adopting solutions that enhance efficiency, increase visibility, and reduce costs. FranConnect's integration with Flywire addresses the common challenges of payment collection, providing a streamlined, reliable, and cost-effective solution. This remarkable innovation simplifies the entire AR lifecycle, ensuring predictable and efficient franchise fee collection, irrespective of geographical boundaries and currency discrepancies. Don't let payment collection be a bottleneck in your franchise's growth. Join the ranks of successful franchisors who have taken control of their payment processes with Flywire's integration. Book a demo with us today to see how Flywire can revolutionize your franchise's payment collection process. Let us help you turn payment collection from a struggle into a strength. For more information, contact us today.

 

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About the author

Kaleigh Wells

Director of Content Marketing

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