Does Aw have discretion in how it applies payments received from franchisees?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
- 10.7 Application of Payments. When we receive a payment from you, we have the right in our sole discretion to apply it as we see fit to any past due indebtedness of yours due to us or our affiliates, whether for royalties, Marketing Fund contributions, purchases, interest, or for any other reason, regardless of how you may designate a particular payment to be applied.
Source: Item 22 — CONTRACTS (FDD pages 39–40)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, Aw has considerable discretion in applying payments received from franchisees. Specifically, Aw has the right to apply payments to any past due indebtedness, regardless of how the franchisee designates the payment. This includes royalties, marketing fund contributions, purchases, interest, or any other reason the franchisee may owe money to Aw or its affiliates.
This discretion benefits Aw, as it allows them to prioritize the collection of outstanding debts. However, this policy could be detrimental to a franchisee. For example, a franchisee might intend a payment to cover the current week's royalties, but Aw could instead apply the payment to an older, perhaps disputed, charge. This could result in the franchisee being assessed late fees or even facing a breach of contract notice, despite having made a payment.
Most franchisors have some discretion in applying payments, but the extent of that discretion can vary. Some may be required to apply payments in a way that benefits both parties, while Aw's policy appears to heavily favor the franchisor. Prospective franchisees should carefully consider this provision and its potential implications for their business operations and financial stability. It would be prudent to discuss this policy with existing Aw franchisees to understand how it is applied in practice and to negotiate for more favorable terms if possible.