Leaving money on the table just because you fail to collect royalty payments can greatly affect your business. To avoid this, you need to be more careful in choosing the people you work with. You can’t just allow everyone to use your products or processes in exchange for royalties. It is important that you assess your potential licensees and see if they can hold up their end of the bargain.
Tips to Make Sure You Get a Reputable Licensee
Ensure that your agreements include penalty clauses, such as payment and interest of audit fees. Guarantee that the potential licensee comprehends the terms of your contracts. In line with this, avoid uncertainties in the language used in the agreement. This means you should replace terms such as “reasonable amount of time” or “pay promptly” with more indicative statements. If you prefer a certain date of collection, then state it clearly on the contract.
Create a stronger databank of licensees by developing a risk profile. You can base this on primary characteristics, like licensees’ business size and location. Recognize and concentrate on high-risk licensees by conducting more extensive audits on them.
Assess if the potential licensee can follow the royalty payment agreement. You can run a background check to see if they have a history of noncompliance or breach of contract. Be thorough on this part, and once you see a hint of disobedience on the potential licensee, you shouldn’t proceed with the agreement, even if they are offering a high royalty rate.
It would be better for your business to avoid assuming that your licensees are recording the correct product sales. Who knows, they could be under recording because of several reasons, including ethical lapses and human error. In turn, you won’t receive the right amount of royalties you deserve. But, if you follow a careful and thorough licensee assessment, you can solve this non-payment issue from the get-go. You don’t have to worry about collections if you have licensees who know how to pay timely and properly.