It’s not uncommon for licensees to be writing a five- or six-figure check when they’re audited by a major licensor. A potential cost of more than one hundred thousand dollars or pounds. That’s a huge impact on cash flow, or means tying up working capital unnecessarily in a violations pot.
An audit by a licensor also has a huge impact on staff time and is not the best moment to discover that spreadsheets and manual systems have not kept up with new deal types and terms. Haphazard manual processes run the risk of licensor penalties, and any licensee with over a dozen contracts with more than handful of licensors is likely to struggle unless they have bullet-proof systems and processes in place to manage every aspect of their deals.
A brutal process
The pain is felt particularly by licensees as they are normally very much smaller than the major licensors. As one licensing industry veteran told me about his own experiences: “The licensors became so powerful. You have to do things their way. Their auditing could be brutal!”
In one case, just one small deal term that was missed ended up with a $2.5m fine from a major licensor – despite having already paid significant royalties and more than earning out the MG. After negotiation the penalty was reduced to “just” a six-figure sum.
Play licensors at their own game
Larger licensors are fortunate to have invested in licensing software like FADEL IPM Suite to streamline their licensing process from deal negotiation to royalty collection. This makes it very easy for them to spot errors and violations as they occur.
Now licensees have access to exactly the same rights and royalty management software in the cloud – meaning they can manage the entire lifecycle of their deals. Ensuring compliance with terms and avoiding violations becomes as simple as feeding in sales data and outputting licensor-ready royalty reports.
Compliance and audit trails
Spreadsheets or manual systems cannot keep track of the history of a deal or royalty calculations. They cannot control who has access, or know who made a crucial change to a calculation.
A licensing system like FADEL IPM Suite keeps track of every single change to a deal, every data point and every calculation. It’s simple to go back in time and see who changed what. And simple to show auditors that same information – demonstrating clearly that effective systems and processes are in place to maintain compliance.
Pay less, spend less
An effective licensing system is not just about surviving the audit – however painful that can be. It’s also about avoiding unnecessary over-payment of royalties and escalating back office costs. A platform like FADEL IPM Suite for managing rights and royalties in the cloud has numerous benefits:
- Pay lower royalties – FADEL’s research shows many licensees are overpaying royalties by as much as 15%, and tying up capital in reserve and contingency funds, “just in case”.
- Earn more revenue – by keeping track of deal terms, under-exploited properties and missed opportunities are immediately apparent.
- Reduce manual processes – from deal negotiation to royalty calculations, licensing teams can spend more time on deals, less time on back office work. Royalty accounting is automated.
- Negotiate better deals – licensees who demonstrate they have good systems in place to protect their licensors’ revenue and brands are in a better place to get the best new deals on the best terms.
Quick and simple to deploy
The cloud makes powerful software quick to implement and cost-effective to use. Probably quicker and cheaper than a failed audit. FADEL’s vast experience of the licensing business and some of the largest licensors means we can help licensees implement an effective system rapidly and simply.
If you’d like to be ready to sail through the next audit painlessly you can read more about how FADEL can help, or for a demo.