We are starting a series of three articles dedicated to a subject that most networks avoid communicating on. For fear of conveying a bad image to financial partners, for fear of broaching a topic that would trigger heated debates at their next convention or, quite simply, to keep quiet about a taboo subject that can only be resolved on a case-by-case basis, depending on the balance of power between the partner and the network management.
Before the contract is signed, and after the 21 regulatory days following the delivery of the Pre-contractual Information Document (P.I.D.), a network can receive financial flows from its (future) partner.
During the entire duration of the contract, this partner will owe various invoices to its network head: operating fees, communication fees, mandated purchases, training, paid assistance provided for in the contract, participation in regional, national meetings or other events…
We will first discuss the different attitudes to adopt with a defaulting partner, before detailing in a second section the procedure to put in place to optimize the recovery of these debts before concluding, in a third and final chapter, on the management of the crisis.
When everything is going well for the partner, i.e. when its turnover is progressing and it is correctly remunerated, there is in principle no debt between the two legal entities. The royalties are paid on time and the mandated purchases are taken without incident.
However, the partners of a network are ticklish. If they are not satisfied, they will act like the true business leaders they are. They will hit where it hurts! Royalty payments will be suspended, mandated purchases will no longer be reimbursed and if they don’t go so far as to boycott meetings – their participation allows them to make their discontent heard and to rally other partners to their cause – they will delay payment of their participation in these events.
The network head with first, the facilitator and the franchise director must then respond quickly to avoid the situation festering. Here are some tips:
- Not visiting these partners placed in the « toxic » segmentation is a bad strategic choice. It will alienate them from the network and accelerate: the risk of non-compliant practices, non-compliance with procedures, customer dissatisfaction and it could even have negative consequences on the brand image of the entire network.
However, this is an easy solution that suits everyone. Everyone is left alone; we’ll see later. The partner gets used to managing his business as he pleases, by taking his foot off the pedal a bit in terms of respecting procedures. As for the network coordinator, he keeps to the strict minimum of visits in order to avoid repeated grievances from the partner, or even the aggressiveness of the comments that the latter makes towards the network head… responsible for his situation. Worse, if the personal and emotional side of things gets involved, it may be necessary to consider a change of manager.
- Tolerating these late payments without reacting will be perceived as a sign of weakness that will be difficult to make up for in future negotiations. The partner will quickly let his colleagues know, who will in turn test the laxity of the network head in order to strengthen their cash flow. A « strong franchisor » attitude is then strongly advised to discourage the other members of the network from entering into this game. We will see in a second part how the network management, with the support of the financial department and the legal department, will have to apply a debt collection process called escalation in order to increase the chances of a quick resolution of this dispute.
- Blocking the supply of mandated purchases as long as the partner’s account is in debit will encourage the partner to find new suppliers by taking the risk of being less careful about the constraints of the specifications that they committed to respect when they signed their contract. This easy to implement approach will have consequences in the medium term. For the customer, for the partner and for the whole network. Let’s remember that we are in front of a company manager who will have no great difficulty in finding substitute suppliers with the sole aim of not degrading his turnover and his margins in the short term.
- Stopping the sending of advertising campaigns or reducing the commercial visibility of this outlet will destabilize the customers -of the network- and will contribute to the fall of the turnover of the outlet. If some will think that it is not normal to make a point of sale benefit from services (of communication in the present case) that it refuses to pay, others will answer that it is necessary to avoid sinking into a spiral of exclusion of the partner and, on the contrary, to help it to find the financial results which it waits for so that this incident is only a bad passage. It seems to us that the role of the network head is to promote the success of its partners by all means.
- Monitor customer satisfaction: it is not uncommon to see a correlation between a decrease in customer satisfaction, an increase in disputes and an increase in partner default. The resentments of both sides will trigger a spiral of frustration, bad faith and alienation from the concept that will put the end customer in the front line. This is when the partner most needs the win-win relationship they signed up for.
This list of advice is not exhaustive, but let’s remember that any approach that could worsen the profitability of the partner’s point of sale is, as far as possible, to be banned.
So what should you do?
First of all, you have to act quickly. The network coordinator must contact the partner to understand the reasons for this payment incident.
- It may be an administrative incident: a problem with the bank (unless it is the third « problem » in a month), negligence on the part of the accountant, his absence, a computer bug, poor organization, loss of the invoice, or simply an oversight on the part of the partner, who is probably more concerned about collecting his own invoices than paying yours… In short, an unpaid invoice with no ulterior motive, and the matter will be settled within two days.
- It can also be a question of a specific cash flow tension: An investment supported without a bank loan, a tax deadline that was not sufficiently anticipated, a dispute with a service provider or even a late payment from one of your own customers. The network coordinator will then suggest to the partner to get in touch with the financial department in order to :
- agree on a new payment schedule by signing a moratorium.
- work on the monitoring of its cash flow via management tools capable of preventing these tensions.
- get in touch with your chartered accountant in order to manage your business in the short and medium term.
- It may also be a case of unpaid bills linked to a real malaise and the network coordinator will have to find a solution with his partner.
If the payment incident is indeed the consequence of a claim, the collection actions will have to have a crescendo rhythm. At his level, the Network Manager will probably be overwhelmed by the scope of the conflict and may not have the means to appease the partner’s annoyance. He will refer the matter to the network manager, who will arrange a physical meeting, preferably at the head office (in order to be on his own ground). At the same time, the financial department will initiate the collection actions that we will detail in a second section.
The pressure of the administrative services will help the network animation teams to manage the arm wrestling that is imposed on them. Everyone will have a defined role. The facilitator will recreate a complicity with his partner by advising him, for example, to hand over an initial settlement in exchange for his intervention to slow down the litigation procedure. The network management will act with an iron fist in a velvet glove. It will listen to the grievances and provide answers, but will have to remain firm on the methods used by its partner to make itself heard.
If it is always easier to put on the velvet glove, we will study in a second part what recovery actions to put in place to have an iron fist.
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