Resolving Royalty Collection Problems in Franchising

Every franchisor has felt the stress and pressure that comes with royalty collection.  What should be an easy, regular business function for their franchise, often turns into a challenge.  However, there are ways to streamline the process, while saving time and money.

Why is Royalty Collection Challenging?

Difficult to Obtain Consistent Revenue Reports

To calculate the royalties payable, sales information, at a minimum, is required for each franchised unit.  Every franchisor has felt the frustration of trying to track down each franchisee to obtain up to date financial information every collection cycle.

Human Error

Even once the financial information is obtained across the franchise system, there is always a risk of human error, either on the side of the franchisee providing the financial information, or on the side of the franchisor or its designated accountant/controller using that information to calculate the applicable fees.

Differing Agreements

Not all franchise agreements are the same, meaning a franchisor may need to track different royalty rates or other fees among franchisees in their franchise network, adding complexity to each fee collection cycle.

Other Fees

It is not just royalties.  Advertising or marketing fees, technology fees, and other regular fees may need to be be calculated and collected from each franchisee, and deposited into different bank accounts. More calculations means more potential problems.

Negative Precedent

Lack of automation can lead to an unpredictable process.  If royalties and fees are not always collected on their scheduled dates, or if exceptions are made due to the manual nature of the process, this can establish a risky precedent.  Lack of transparency to the franchisee may increase the risk of insufficient funds being available when the payment is withdrawn or legal complications if disputes arise.

What does this mean to the Franchisor?

To mitigate all of the challenges mentioned above, every franchisor needs to dedicate resources, whether a corporate staff member, bookkeeper or accountant, to manage the process.  Even emerging franchises often require a bookkeeper to spend several days each billing cycle managing the process.  It all results in additional costs to the franchisor. Brands with 25 open units have seen bookkeepers spend 3-4 days per week dedicated to calculating, invoicing and collecting royalty payments.

If mistakes are made, which inevitably happens in any manual process, there is potential legal and financial liability to the franchisor.

How can ZORZEES Help?

ZORZEES takes much of the stress out of the royalty collection process.  Through direct integrations to POS systems like Square, Clover, and Booker (from Mind and Body), franchisee sales data automatically feeds into the ZORZEES platform.  With individually configured fee and royalty settings available per franchisee, the correct fees and royalties can be automatically calculated instantly.  After franchisees securely connect their banks to the the Zorzees platform (via technology provider Plaid), bank transfers are fully automated on a weekly, semi-monthly or monthly schedule.

Franchisees like it because they know exactly when payments will be withdrawn from their account, allowing them to budget accordingly.  Franchisor like it because the automation reduces stress and risk by significantly removing nearly all human error and increasing the reliability of collections.  With a full history of payments available via reports, both franchisor and franchisee feel comfortable with complete transparency. It helps earn and keep trust in proven systems.