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7 Ways to Improve Your Royalty Audits


As a business owner, you are more than aware of how complicated it can be to do appropriate money management. Audits are often a difficult experience but can be eased if you are keeping track of your own monies responsibly. A great way to keep everything in check is by regularly monitoring your own licensees and preparing yourself for any royalty audits. Included here are a few ways for you to improve your royalty audits.

Understand Your Licensee

One of the best ways to avoid trouble with royalty audits is by having a good understand of your licensee’s business practices. Knowing how their company runs will help you have a greater understanding of their compliance with your licensing requirements.

Make Agreements Clear

The best way to get yourself in trouble with an audit is by failing to make every aspect of your licensing agreement clear. Make sure you are writing agreements in unambiguous terms and incorporating financial provisions for each licensee. The business practices and conditions of each licensee should be clear and concise with no room for error.

Collect Your Royalties

IP owners often find many situations where they are owed money as a result of a royalty audit; it is your right to collect those royalties. Often, these discrepancies can be the result of innocent mistakes, turnover in personnel or misunderstandings of the contract terms. Royalties affect your company’s financial health and should be collected even if they are not the result of fraud.

Hire an Auditor

Professional auditors do their work well and for a reason. Sometimes using your company’s own staff can turn up conflicts of interest and strain on relationships. Utilize an outside party to deal with the audit so that everyone from your company’s standpoint will be professional during the settlement phase.

Never Rely on Verbal Agreements

One of the biggest mistakes you can make is to rely on contracts that are formed verbally. Never take someone’s word for something if you can have it written down. All agreements, modifications and changes should be submitted to writing. A verbal contract is not going to hold up when it is time for you to collect royalty fees.

Monitor Products

Keeping an eye on your products that are out in the marketplace is always a wise decision. You will be able to catch any license discrepancies and violations early and don’t have to wait for an audit to collect. This will keep all licensees on their toes and keep your audit process simpler.

Be Unpredictable

The best audits are often performed sporadically. This means you should still be doing them on a regular schedule, but do not let your licensees know in advance. This will put your company in a zero-tolerance position of under reported royalty payments from licensees.

Anna Johansson

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