In a previous section, we mentioned the events that could lead a partner to delay the payment of its invoices (operating fees, communication fees, mandated purchases, training, etc.) to the network head.
We explained that it was essential for the animation team to quickly determine whether the unpaid invoices were the result of :
- An unpaid invoice without any ulterior motive: a problem with the bank, a negligence or absence of the accountant, a computer bug, the loss of the invoice, or simply an oversight on the part of the partner.
- A one-time 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 a late payment from one of its own customers. In this case, the network coordinator will propose to the partner :
- The signature of a moratorium.
- The implementation of a cash flow management tool
- To get closer to his chartered accountant
- A real discomfort that incites the partner to start an « arm wrestle » to make his discontent heard by the network management.
Having discussed the operational aspects of managing these payment incidents, we will propose here some advice and methodologies that could be put in place by the back office departments (accounting and legal) to support their colleagues.
- The creation of a « risk committee » encourages collegial decision-making on the follow-up to payment incidents and disputes in the network. This committee is made up of the management controller (in charge of monitoring late payments by partners), the legal expert or lawyer who drafted the franchise contract (the link between the action plan of operational staff and the technical feasibility of the clauses in the partnership contract) and the regional director. Meeting in monthly sessions, they decide on the actions to be taken to manage and anticipate the deterioration of the network partners.
- Implement regular reporting tools.
- the default prevention scoring which allows to identify the points of sale at risk at 3, 6 and 12 months. Based on concrete criteria (payment by check or direct debit, regular delays of more than 30 days, payment before delivery required by other referenced suppliers, moratorium already in place, quality rating, customer disputes, etc.), this indicator increases vigilance on a portion of partners identified as « at risk ».
- monitoring of bad debt: The day after each due date (for example, on the 6th of the month if royalties are taken on the 5th), the franchise management controller sends each manager a spreadsheet listing the payment incidents of the franchisees in his or her area. As soon as he receives it, the manager contacts his defaulting partners in order to obtain immediate regularization. Beyond the aspect of debt collection, which could have been done directly by the accounting department, this conversation allows the manager to have a direct exchange on a sensitive subject (the cash flow of his partner’s business). The latter will reveal his level of satisfaction or dissatisfaction: it is the network’s barometer.
- The feedback from the coordinator who indicates to the accounting department the reasons mentioned by his partner. It is possible that an invoice is not due (pending credit note, error on the invoiced amount, modified due date,…). If this late payment is justified, the accounting department will have to resolve the dispute before triggering the collection process.
- Partner segmentation. It is not just a matter of putting profiles into boxes, but of identifying similar behaviors that lead to the same findings in order to plan the actions to be taken before they are imposed late. This segmentation can be built quickly using a spreadsheet in order to visualize the groups of partners on an abysmal – ordinate axis. Below is a non-exhaustive list of elements to measure: confidence in the relationship, growth in sales and number of customers, customer satisfaction rate, quality rating, participation in the life of the network, time to implement new features, team training…).
- The collection process:
- At D+3: Three days after this first call from the coordinator, the network management controller sends a reminder e-mail (or letter) to the partner in which he asks him to regularize his situation without delay. The reminder is accompanied by an updated accounting situation, as an attachment. If there is no reaction (i.e. no payment), the partner is reminded by telephone 10 days after the initial deadline. From a significant number of partners, it is advisable to equip yourself with a debt collection and reminder automation software.
- At D+30, the countdown accelerates. The situation takes a bad turn. The more time passes, the further away the payment becomes. Firstly, because if the partner was willing to pay his debt, he would certainly have already proposed a solution. Secondly, because a second instalment could be added to our outstanding debt and increase the initial debt.
The network manager, who until now has been discreet in order to leave the legitimacy of his operational teams, must intervene. A phone call, a call to the head office, or even a visit to the partner’s point of sale must take place. The network manager must listen to his partner but must also be firm about respecting deadlines. Any commercial gesture on his part must be preceded by a payment from the partner.
At the same time, the accounting department, which has already sent a reminder e-mail (or letter), followed by a telephone call, will send a letter of formal notice, with notification of late payment interest, by registered mail with acknowledgement of receipt. The objective is threefold:
- To act in a crescendo to make the partner understand that time is against him and that each step of the collection process follows an escalation process that leads him to litigation.
- Allow the network manager to act as a mediator between his partner and his financial and legal department which applies an organized collection scheme.
- Communicate with other members of the network who wish to imitate their colleague by delaying the payment of their due dates. The members of a network communicate with each other, everything is known: the financial aid you have granted to one, the debt waivers granted to another… A flexible attitude will be seen as an opportunity by some to easily obtain the cash flow they do not get through their operation.
After the formal notice stage, it is the legal department that takes over. It can send payment injunctions, mandate bailiffs, enforce the resolutory clause, hand over the file to the lawyer… We are gradually approaching arbitration or a trial in the commercial court (depending on the contract clauses).
The operational team no longer has the upper hand. At best, it will be sold to a new partner or taken over by the network head, who knows the cost of a new opening at this location.
This is why it is not uncommon to see the file land on the desk of the general manager, who wonders, as a good visionary, if it would not be better to settle the debt and start again on a good basis with this partner.
This reflection will be addressed in a future section, which will deal with the economic and psychological impacts for the network, which will have to arbitrate according to :
- the costs of closing a point of sale (deposit of the brand name, image of the network, networking, impact on the DIP and on new candidates…) ;
- the costs of reopening in the same city (recruitment of a new partner, search for commercial premises in the same area, initial training of the candidate, winning back customers who have switched to the competition, etc.);
- and, the loss of earnings resulting from the in-between period (absence of royalties, impact on the network’s purchasing volumes, supplier discounts, morale of partners in the same situation, etc.).
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