A business relationship in which one party agrees to pay a share of its income from the use of intellectual property (IP) owned by another business or individual is called a royalty arrangement. The agreement is formalized through a contract which is the basis for the accounting of the fee. Payment can be calculated through a percentage (fixed or flexible) of revenue (gross or net) while the payout can be quarterly or annually.
Royalty Payment Management
Managing royalty payments is one of the most challenging tasks of an accounting company. Tracking, vetting the usage, computing, printing and delivering royalty income statements take a lot of time, resulting in delays and disputes. Over a billion dollars are lost annually because of inefficient royalty management. Record-keeping alone where receipts and tracking documents are spread across files, users and departments translate to a loss in productivity for accounting businesses and loss of income to IP owners due to a delayed collection.
The major challenge for accounting firms is adopting the changing systems of royalty accounting. MetaComet® Systems, Inc. identifies three common situations where making a switch from manual to a software-based system can be challenging: having a manual process, looking to switch and those who have just started. But once the challenges are overcome, the company will start reaping the following benefits.
- Easy systems’ migration into existing procedures while data are provided with backup security.
- Electronic or cloud-based record-keeping streamline the business process compared to manual systems.
- Saves time and money by eliminating printing and mailing while faster payment is made by integrating with electronic bank transfer systems.
A good royalty accounting software delivers more than just automated calculation. It should also be flexible to calculate different kinds of royalty arrangements, allows real-time access, viewing and checking of royalty details for fast resolution in cases of disputes. It should also integrate with file sharing and messaging tools for easy communication among IP owners, royalty managers and accounting companies.