Managing contracts and royalty payments efficiently requires a reliable process which gathers inputs from many functional areas of your business including accounts payable, production, and others. Sometimes it makes sense to automate the flow of this information into your royalty process, other times it’s more cost effective to handle it manually. Before you spend the money on setting up an integration you may not need, take some time to evaluate your systems and options for improvement. This will lead to both an informed decision and a useful look at a critical part of your business. In this post we present you with a framework for assessing how best to integrate your existing operations into your royalty management process.
To begin, consider the royalty management process as a black box. Inside this black box are the people who manage royalties, the tools they use, and the processes that they follow. The black box requires the following inputs:
- Contract details outlining how and when royalties are paid;
- Royalty Recipient information;
- Product data;
- Sales data for each unique product from customers, retailers, and distributors.
The black box then processes the inputs and provides you with the following outputs:
- Royalty statements;
- Royalty payments (either vouchers for your AP system, or cutting checks directly);
- Accounting details and summaries to support your financial statements and balance sheets;
- Business intelligence.
Each input and output is a potential link with various departments and functions within your company. Analyzing each link individually can help you determine whether changing or automating your current process is worth the cost and effort.
We may live in a digital, highly automated age, but automation does not guarantee greater efficiency and higher profit margins. Simply put, there is nothing inherently inefficient about manual processes. If your manual process is accurate, not prone to errors, and not too time consuming there is probably no compelling reason to change it. In fact, manual processes between departments are often the easiest to maintain. If investing in setting up an integration between your royalty software system and other parts of your business does not offer a stark improvement to your current processes then it’s probably not the right choice for your business.
An effective royalty management process should provide three main benefits:
- Cost savings
- Exploitation of key resources
- Minimizes errors
- Maintain good relationships with rights holders, authors, etc
- Minimize risks associated with either paying too much or too little in royalties
- Reduce the risk of fraud
- Conform to Sarbanes-Oxley
To ensure all three benefits you first need to find the best method for getting data into the black box. This can vary widely depending upon many factors.
For example, if you’re using QuickBooks™ and have a few hundred payments a year, then manually entering checks may work fine. On the other hand, if you’re a larger publisher using a more complicated accounting system (e.g. SAP, Oracle, etc) you may benefit from automating your output so that it integrates directly with your AP system. For others, a hybrid approach may be best – automate some payments, like royalties, but manually handle others, like advances. The point is, you need not follow a one-size-fits-all approach. A flexible royalty management system should allow you to implement the efficiencies that you need most, allowing you to find the right level of integration between your royalty software system and other parts of your business.
Also consider that a quality rights and royalty accounting system, such as MetaComet® Systems’ Royalty Tracker® Solution, has import capabilities. So rather than create an automated link, perhaps your IT department can run a report that will output to Excel (or some other standard data) which can then be imported into your system – no “formal” integration, but equally effective
A good first step in determining your potential return on investment for integration is to consider the following questions:
- Is the creation of new information feeds in and out of the black box worth the cost of ongoing maintenance? (which is always more than anticipated)
- If you input data manually, where and how do you get the data? How challenging is it to get the data?
- Are administrative or temporary resources available to assist in manual processes?
- How long does it take to do it manually? Is there a history of errors in so doing?
- Do you have the right resources and the necessary technology for integration? Would a change require you to upgrade equipment or purchase new technology?
- Would you need to hire new employees or consultants to handle integration?
- Would integration enable you to reduce the human resources used to process royalties?
If you opt to establish integration with other parts of your business be sure to factor in time and resources for testing in order to assure quality. For best results, test your production data in a controlled environment, carefully audit the results, and test in appropriate boundary conditions. Start with a few small, simple tests then go bigger. After testing, if you decide against integration the time spent analyzing your processes will still be worthwhile because you will have gained a deeper understanding of your processes. And since you will have already done the legwork, as your business grows you will have a better idea of when integrating a royalty tracking system will allow you to manage your operations more cost effectively. Then after each royalty period, you can do a quick mental assessment to inform you whether an additional integration makes sense for the next royalty cycle.