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Currency Exchange Rates and International Franchising

Currency Exchange Rates and International Franchising

For those franchising companies, which do business internationally, they must consider currency exchange rates in the countries in which they do business. Otherwise large fluctuations in currency devaluations can cause huge problems in the franchisor’s cash flow.

It is for this reason that I had decided to add a clause into our international franchise agreements, which addressed this very issue below;

2.6 Currency

All fees, royalties and other payments referenced in this Agreement are stated in the currency of the United States of America (“U.S. Dollars”). All payments due to Franchisor under this Agreement shall be made in U.S. Dollars. Any fees or payments may be calculated and determined in the currency in which the receipts are denominated. However, payment of all such fees shall be made in U.S. Dollars based on the “Exchange Rate” in effect as of the last day of the date on which such fees or payments are due. As used herein, “Exchange Rate” shall mean the rate of exchange of the currency in which Gross Receipts of the Location are denominated and U.S. Dollars, as published in the United States edition of The Wall Street Journal on the next business day following the last day of the calendar month for which a fee or payment is due.

In the event a payment is transmitted after the date payment is due, the currency exchange rate used shall be the Exchange Rate as of the date payment was due or the Exchange Rate as of the date the payment is transmitted, whichever rate produces the larger amount in U.S. Dollars, and regardless of any Late Payment (as defined in Section 2.5 above) or of any other remedy for non-payment or untimely payment of sums due pursuant to this Agreement. Franchisee shall be responsible for obtaining and maintaining any and all necessary or appropriate governmental approvals or permits enabling Franchisee to make payments to Franchisor in U.S. Dollars.

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Believe it or not, some international franchise agreements do not have such a clause in them and for those franchising companies it might be too late to add such a clause after the fact. It is for this reason that I recommend any company considering franchising internationally to go see an international franchising attorney who has dealt with such things. I hope you will consider this in 2006.

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