Wednesday, August 8, 2012

Three elements in a standard audit clause, and one non-standard one you should request

Unless you're taking cash from purchasers of your books or CDs at a county fair or equivalent, there is always someone standing between you and your money. Even if it's just VISA or Paypal for sales through your website. But much more often there's one, and sometimes as many as three, groups between money and you:
  1. The retailer.
  2. Your publisher, distributor, etc.
  3. Your agent.
Naturally the retailer is in the chain of payment. In a traditionally-published product your publisher couldn't not be in the middle: they've got the relationship with the retailers. And your agent will want to be in the middle if they have any sense - that way they can make sure they get their cut.

There's nothing intrinsically wrong with any of these situations. But you need to make sure you get all the money to which you're entitled.

Although it goes without saying that you should review your royalty statements and compare the amounts listed to your bank deposits to make sure they line up, sometimes you need to go behind the payments and the statements. To do that, you need an audit clause in your contract.

You're under no obligation ever to audit anyone. If you think things look like they're making sense with respect to your payments, you may never want to. Sending an auditor will probably cost a few thousand dollars, and so you might think your money is better-spent somewhere else. But if your book or app is a huge seller you'll be quite glad you did this right from the start.

And although all audit clauses are different, there are three standard things you should look for in yours.
  1. The right to do it at all. I've seen clauses that would limit your rights such that you wouldn't be able to access all the information, just a selection. That's unusual, but not impossible.
  2. The right to get paid back in case of discrepancies. There will often be discrepancies, but the publisher will insist upon only paying in the event they are significant. Standard is 5% and you shouldn't take worse.
  3. The right to question statements for more than a year after you receive them. Many publishers will have boilerplate saying that after a year your statements are deemed to be true and you can't question them. You should push back on that: three years is pretty standard and you should feel free to ask for that.
And one additional thing you should request: that any deductions from gross to net should be itemized. The publisher may push back on this but they really shouldn't. If they know that they should take a deduction then they know what it is and therefore they had it itemized at one point. You may trust your publisher, but the whole point of an audit clause is to allow you to verify that trust.

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