Whether you’re a licensor or a licensee, keeping track of and processing royalties can quickly get complicated and cumbersome.
Royalty rates may vary across contracts, intellectual properties, territories, and many other factors. As your licensing program grows, this can get harder and harder to accurately manage.
How can you ensure that royalties don’t go missing?
Know the Facts
Most royalties are “lost” by folks simply not knowing key facts. Information isn’t always readily available for each person to know what they need to know, especially when it comes to royalties.
With all the variables possible in royalty rates, plus escalations and changes, a seemingly straightforward contract can quickly become convoluted.
It’s important that your team members know exactly what’s expected from a licensing contract to help ensure proper royalty tracking and reporting of royalties.
Having royalties that vary based on factors, such as territory or sales channel only works if the rates are properly applied and reported. If a product is sold in an incorrect territory, for example, this can affect not only your royalty payment but your contract standing.
Calculating the right royalty rates with the right IP, SKU, retailer, and territory needs to be accurate. You can miss out on royalties if licensees are reporting an incorrect rate or are missing a royalty escalation based on sales.
Validating the sales against the contract terms is crucial both for licensors and licensees.
Licensors can stop worrying about missing and underreported revenue, and licensees don’t need to sweat over audits or subsequent penalties.
Understanding Contract Terms
Licensors look for maximum profit when it comes to receiving royalties.
For royalty tracking purposes, it’s important to include only those deductions that are allowable based on the contract.
Licensors need quick & easy validation of royalties against their contract terms.
As much as it is crucial to support the licensee’s ability to sell merchandise in the retail environment, licensors who do not insist on a carefully considered definition of net sales are literally leaving money on the table.
Licensees need to know what they can deduct under each contract and make sure they are not exceeding any maximum allowances.
The licensing agreements should define such terms- the granted rights, minimum guarantees, and audit provisions, along with net sales and deductions, in greater detail and clarification.
The correct interpretation of these terms is necessary to avoid costly mistakes and not impede revenue streams.
Set Up a System
With all the ways royalties can fall through the cracks, it’s important to have a system in place to monitor these spaces.
Royalty management software is a threefold solution – it saves time, money, and the partnerships that can go wrong from miscalculated royalties.
Royalty management software can streamline your royalty processing and remove manual cross-referencing headaches. It also enables all relevant team members to be in the loop regarding contractual information.
Royalty software also automatically validates your sales against the terms of your contracts and promptly flags noncompliant sales and royalty rates.
It can also save hours of work and frustration over manual royalty calculation.
No more second-guessing. You will KNOW if a royalty is incorrectly calculated and by how much, allowing you to capture that revenue quickly and easily.
Dependable Solutions has a team of seasoned professionals with vast industry knowledge. We can help you, with a system to track your contract terms and financial commitments, validate royalties and find you missing or underreported revenue.
Learn more about Dependable Solutions transformative royalty management software that safeguards royalties, ensuring they don’t go missing in the first place.