I entered into a fee + royalty contract with a fairly large manufacturer.
I am curious to know if there are ways to check on royalties and how to audit to make sure they are reporting “true” sales and units sold data.
Anyone have experience or advice on how to make sure we are not being “screwed?”
Hopefully you have something in writing that would allow you to audit your client and/or to use sound accounting practices.
Royalties are a very hard to manage. In the future, I would not work for royalties.
True, it is important to get auditing rights into your contracts. If you are talking aobut big dollars then I reccommend hiring an auditor before the end of the first year of sales. The auditor may find mistakes, both honest and dishonest, but more importantly the company will know that you are very serious about getting paid. In addition, request that your royalty statements are sent to you monthly and are as detailed as possible. Royalties are hard to manage, but can be an excellent way to build wealth especially if you are working with trustworthy companies and also collect a fee upfront.Good luck!
I collected money upfront and then negotiated a fixed number of cents per unit. The upfront fee covers me from any total loss. I always work for some sort of upfront fee. I never do stargith free design for royalties. Always get something upfront regardless.
Anyway I do have a audit term in my contract. I have the right to examine their books and they have to keep those records and my right to inspect them for 3 years after the termination of sales.
Would an auditor be a member of the law firm I intend to use?
Does customs let you check actual shipments? Perhaps I can also check numbers of their cutomers since this is an OEM product that will bear other labels.
My terms are that they must give me a report on net sales and quantity sold every quarter along with a quarterly royalty payment.
I think I will give them 1 - 2 years before I begin to check. This will give them time to build orders and sales and more damages if they stray
ANyway any more advice or comments are welcome…let’s share!
If they are selling to another brand then they must be declaring the items and numbers sold to that customer for clearing customs.