Is there ever a good time?
Some Licensors feel hesitant to audit,
for fear of damaging the business relationship, however it should be seen as a natural part of the relationship and be conducted in a professional yet sensitive way. It is advisable to carry out an audit of your licensee base approximately every two years, and certainly at least three months before the expiry of the agreement.
What does it involve? A Royalty examination would compare actual sales made to those declared and in addition would cover other contractual issues such as stock discrepancies, deductions from the royalty basis, giveaways, territory of sale, type of sale and marketing spend.
How much additional revenue will be found? This is impossible to detect without actually performing the audit. It may be that a Licensee has previously been visited and we can be advised whether it would be appropriate to carry out a review.
Although the majority of audits performed result in the collection of additional revenues, the audit process is about reviewing the agreement in its entirety, and should be seen as a way of confirming that all terms of a contract are being honoured.
On Site Reviews
Although smaller in scope than a Royalty Examination, an On Site Review, enables the Licensor to draw conclusions as to the whether the licensee is generally compliant with the terms of the license agreement and the monetary value of findings if a full royalty examination were performed.
Many Licensors suffer poor contract administration. Royalty declarations are often incorrectly booked with little attention paid to the article number (SKU), the licensed character or the royalty rate. Many potential audit findings, such as country of sale and deductions from the royalty basis, can be monitored and corrected at the administration stage.
We offer a number of services to improve your contract administration from a cost effect evaluation of current methods to an on site visit every declaration period to support and assist in the processing of royalty declarations.
Pre Audit Review
Have you just received notification that you are about to be audited by a Licensor?
Our Pre Audit Review will perform those tests specific to a royalty examination to check that you have complied with your license agreement, highlight any potential findings and calculate the monetary impact.
Why have a Pre Audit Review?
The answer is simply to save money. The majority of audit clauses entitle the Licensor recharge Audit Costs where a difference 5% is found. With average audit costs in excess of US$10,000 and unreported revenues incurring interest of up to 15% total audit findings can be a significant amount.
Post Audit Review
Once audited, you should receive a letter from your Licensor requesting payment and requesting a response within a very short period of time. You may not have the facilities or the staff to adequately review these findings in the time allowed, often leaving little option but to comply.
In performing a Post Audit Review, we will read the Licensor's report, check all calculations presented, and draft your response, including advise on any findings to be agreed and any to be disputed.
Most audit findings are a result of poor contract administration on the part of the Licensee. Sales not correctly reported, incorrect royalty rates and sales outside of the licensed territory are the most common and costly errors. We offer a cost effective service where we will prepare your monthly or quarterly declarations for you whilst ensuring that you have complied with the terms of the license.