Factoring Companies Guidebook
Royalties
Definition
Where a Client's invoice contains a royalty element.
Concerns
If a Client is selling/distributing/manufacturing goods which are the subject of royalty payments, their ability to do so may be withdrawn if those payments are not paid in accordance with the agreed terms. Potentially this could lead to penalty clause claims.
There may be conditions within the agreement confirming the royalty terms, which specifies that a percentage or proportion of the proceeds of each sale be held in trust for the body requiring the royalties. If this is registered as a formal Charge, before ours, it would have priority over the proceeds of sale.
Even if not formally registered, a claim may be made under any trust clause, which would at the very least, potentially delay payment to us, also involving it in costly legal action and increased interest costs for the outstanding debt.
Identification
Make enquiries to the Client as to whether they sell any goods which are the subject of royalty payments.
Review the purchase ledger to determine any such payments and their scale.
Review the Client's Management Accounts for any accruals for Royalty Payments.
Review payment records to ensure that they are up to date, with no outstanding or at least, manageable liabilities.
Treatment
Such debts are generally non assignable, but at least the value should be ascertained and an appropriate reserve created.
