Rights and Royalty Management Best Practices

What Is Royalty Management?

Companies often license content, trademarks or other intellectual property (IP) from a third party in order to create and sell new products.  The compensation for the use of that IP frequently takes the form of royalties.

Rights and royalty management encompasses all of the tasks involved in recording the terms of licensing agreements, tracking revenue related to the licensed IP, calculating royalties owed, and making royalty payments. 

Why Is Royalty Management Important? And What About Best Practices?

For companies that depend on licensing agreements — ranging from book publishers and technology and life science companies to entertainment companies and brand owners — effective rights and royalty management is essential.

Royalty management requires impeccable accounting to ensure compliance and internal and external auditability and to maintain positive relationships with partners. This means devoting significant human and technical resources to the process. Failure to properly manage royalties or rights can lead to erroneous payments, broken trust from clients, and negative impact on your bottom line.

Our rights and royalty management best practices allow you to avoid these downfalls. These tried and true techniques are proven to help you achieve results, avoid mistakes, streamline the process, and safeguard your business relationships.

What Are 3 Best Practices for Royalty Management?

1. Plan.

Often people do not realize how time consuming accurate royalty processing can be, so when starting up a royalty-based business, they don’t invest in upfront planning. Proper planning means keeping track of your deliverables, including royalty statements,payments and financial reports, and their deadlines, and knowing when to start each process in order to finish on schedule.

You also need to stay on top of your inputs, such as product codes, revenue data, and contracts, to avoid a backlog or, worse yet, a missed or erroneous payment. Make sure you understand how each input impacts your deliverables, and how long it takes to acquire inputs. Then keep an open line of communication with input sources to ensure timelines are accurate and deadlines are met. Also, give yourself the time that you need to manipulate the numerous Excel spreadsheets, sales reports, and other files you will likely receive.

2. Optimize.

During the planning phase, look for opportunities to optimize your process. Should sales be aggregated to facilitate calculations? Is there a way to decrease the number of input sources to reduce errors in the process? Once you hone in on ways to improve efficiency, you can implement solutions to better manage your royalties.

Some of these processes may be manual, especially when you’re dealing with only a few payees or contracts, but most companies will benefit from an automated system. The reduction of painstaking manual tasks means less room for error. Plus, you are not utilizing valuable human resources on tasks that can be automated. It is drastically more expensive for human resources to process all royalty management tasks when they really only need to do about 10% of the work. Automation can reduce human effort in managing royalties by as much as 95% according to our customers. Reporting and auditing also improve with automation because it centralizes information and eliminates the need for clunky, hard-to-read spreadsheets.

3. Choose the right system.

Once you reach a certain contract threshold, managing royalties manually becomes prohibitively expensive and risky. When this happens, royalty automation will do wonders for your productivity, bottom line, and client relationships.

There are a number of factors to consider when choosing the right royalty system. First and foremost: is it easy to use? Any program you consider should offer a suite of intuitive tools that simplify the process.

Do you need the system to integrate with other software programs within your organization? Many businesses do not require integration – their transaction volume is low enough that the results can easily be imported or inputted by hand into accounting programs, for example. But if integration will save substantial effort, be sure that your prospective rights and royalty management system can integrate with your accounting and perhaps product management systems.

What are your company’s security requirements? Your royalty system will contain proprietary sales and financial information, which you most likely want to protect. If securing your data is important to you, look for a software provider with a reputable security certification, such as SOC 2 Type II.

Finally, is the royalty accounting software company a reliable partner that’s dedicated to its royalty management services? Choosing a royalty software company with limited experience, or one that is unfamiliar with your industry, could be a recipe for disaster. Ask all potential software partners about their experience and request multiple relevant references. Then call and check them.

The answers to all these questions will vary depending on your company, industry, and current software systems, so it’s important to examine and compare all your options before making a decision. The key is to evaluate your specific needs and find the royalty tracking software that will perform best for your specific circumstances.

Managing royalties can be a hassle and a detriment to your organization if done incorrectly or inconsistently. Don’t let the process put a drain on your time and financial resources. Implement these royalty management best practices and ensure your organization is preserving its client relationships, while making the most out of its time, money, and people.