From the Puzzled File

June 28th, 2004 · No Comments
by Booksquare

We are the first to admit there’s a lot wrong with the publishing industry, especially as it relates to royalty accounting (don’t ever corner us at a party after we’ve had too much wine — we really get started on the subject). We also applaud entrepeneurship and looking for new publishing paradigms (do you seek paradigms or are they applied retroactively? Must ponder this later.). But we wonder at the authority of the Instant Book Writing Kit’s author when he offers quotes such as this:

“One of the most blatant examples of these unacceptable practices is when the industry forces authors/self-publishers to wait a full 90 to 120 days, and sometimes longer, to get paid after a book sale is made” stated [Shaun] Fawcett. “Another example is the industry’s standard protocol for ‘returns’ whereby book sellers are given 100% refunds for books they order but do not sell, and then these refunds get charged back to the author, often months after the initial transaction!” [note: we somewhat agree with his next sentence about low royalties, so haven’t quoted it here. We wield our power absolutely.]

Okay, a bit of an accounting lesson. We will be brief rather than boring… Sales work somewhat like this: author licenses book to publisher, publisher sells book to distributor, distributor sells to retailer, retailer pays distributor, distributor pays publisher, publisher pays author. Other costs may be involved.

ocess is not necessarily as linear as we present it, what with moneys being exchanged all the time, but given the established protocols of accounts receivable and payable, it makes sense that there is a lag between sale and payment. Most of us wait until the last minute to pay our bills — so do savvy businesses (even those who take early payment discounts despite not actually paying early). This convoluted money trail is one reason royalty statements are timed the way they are. We should mention that we have problems with six month statements due to modern technology, etc, but that’s a whole ‘nother post.

And returns. What Fawcett feels is scandalous is, uh, logical. Here is the process in a nutshell: retailers receive books, they put books on shelves, they pay for the books they purchased, not all books are sold, retailer returns books (as per various agreements between retailer and distributor, and distributor and publisher), retailer receives cash or credit for returns. This is somewhat similar to returning a toaster after you’ve paid your Visa bill.

In practice, the publisher has deducted a reserve for returns from an author’s earned royalties, so actual item-by-item returns are not reflected on the statement (and this is where we rant about adjusting such reserves to reflect actual returns, but, again, that’s another post). We’re not sure why this is an issue for Fawcett, unless he encountered a situation where the initial reserves were liquidated, and the publisher deemed it safe not to calculate further reserves. In that case (we’re having a hard time imagining any publisher would follow our example, but we’re trying to give the author the benefit of the doubt), the publisher would indeed deduct actual returns from the current period’s royalties. And, yes, those returns would be for sales made in previous months or even accounting periods.

We did warn you…royalty accounting is something we find very exciting.

File Under: Publishers and Editors · Tools and Craft