Royalties Withheld for Returns: How do reputable publishers handle it?

I've discussed reserve against resturns in some detail here: http://absolutewrite.com/forums/showpost.php?p=332951&postcount=4669

Mass market books are stripped at the retail level and the covers returned for credit against the next order. (It is quite literally true that it's cheaper to print a new copy than to send unsold copies back to the warehouse, sort them, and repackage them.)

Trade paper and trade cloth are whole-copy returned, and are warehoused and reshipped to fill other orders (assuming they're still in good shape).

Some small publishers have such restrictive returns policies that they're hardly more attractive to booksellers than no returns policy at all. For instance, a returns policy that kicks in only if the bookseller orders a minimum number of books, or a returns policy with a return window of only three months. In such cases, establishing a reserve is probably moot.

- Victoria

No, those policies would encourage booksellers not to bother with the publisher. A limited returns policy is a big P in the A. There's a difference between deciding to send a book back after it has sat on the shelf for three months, and knowing you won't get credit for returning it if you don't send it back after three months.

You're right, though, that in theory a short returns window is self-defeating, since it encourages sellers to yank books off the shelves. Larger publishers have a much more generous returns window--up to a year from the invoice date, and sometimes even longer.

- Victoria

Popeyesays said:

Paragraph D. (Reserve Against Returns))
“In making accountings, the Publisher shall have the right to allow for a twenty percent (20%) reserve against returns. If royalties have been paid on copies that are thereafter returned, the Publisher shall have the right to deduct the amount of such royalties on such returned copies from any future payments under this Agreement.”


This means to me that this reserve doesn’t have to be paid until the publisher darned well decides to pay it back out of the goodness of his heart.

Click to expand...

This is one of those things that's often not spelled out in publishing contracts, because it exists in the realm of what's commonly understood--i.e., it's understood that the publisher will pay down the reserve, and ultimately that you will get credit for any withheld royalties. Different publishers do it differently: sometimes the reserve will be reversed out and re-set on every royalty statement, sometimes it'll be established at the start and paid down successively. In general, reserves tend to disappear after two to four years, again depending on the publisher.

But that's the world of commercial publishing, in which there are established standards and accounting procedures, and authors can take their publishers to court if they do the wrong thing. In the world of the hobby press, there are no such standards; the people running the press may not understand their own contract terminology, and "accounting" may simply mean a notebook with numbers scribbled in it. Because the presses have no assets, and their authors tend not to be professional writers (sorry, I know that sounds offensive), there's not a great deal for the owners of the presses to fear legally.

That's not to say that bad things don't happen in commercial publishing. They certainly do. Reserves against returns is an area that's ripe for abuse; you need to watch your reserves (among other things) like a hawk, and make certain they're being accounted correctly. But you do have the assurance that exists with any successful business--that there are established standards and procedures in place, which are understood by those who administer them. With micro-presses, you have no assurance whatever--not even that the people involved have a clue what they're doing. So even if a micro-press is not consciously setting out to cheat you, the likelihood that something will go wrong or get screwed up is pretty high. Obviously you want the best contract language you can get, even with a micro-press--but even good contract clauses can't protect you against the effects of amateurism.

- Victoria

Assuming that the contract means exactly what it says, and that it will be enforced by a literal-minded SOB, is always a good idea.

So who uses "royalties withheld for returns"? Large publishers?

My first (and only) book came out from a small, regional publisher. I receive royalties based on actual sales. The publisher pays me for a book only after the bookstore pays him. I was in B&N the other day, and there were a dozen copies of my book. It made me sad, until I went into the local Borders, and saw there were no copies of my book. This made me happy, because there were a half dozen a couple of months before.

As I understand it (probably incorrectly), the bookstore pays my publisher only after a book is sold. But is the normal procedure that the bookstore pays the publisher up front for inventory, and then gets a credit when returning unsold books?

For my next book, I've acquired an agent who is shopping my proposal only to large publishing houses. Should I expect a contract with a "royalties withheld" clause in it?

-- Josh

There aren't any short answers to your question, Coyote, and I don't think this is the right area at AW to give the long answer.

Why should TICO have a reserve against returns at all? This makes no sense.

TICO is a POD operation, and like most PODs, they don't have a distribution deal that puts books onto bookstore shelves. Thus, TICO's books aren't going to be returned by bookstores, because they aren't being shipped to the stores in the first place. There are no returns to be reserved against, and no justification for them to be holding on to that portion of their authors' royalties.

There aren't any short answers to your question, Coyote, and I don't think this is the right area at AW to give the long answer. ______________

Click to expand...

Thanks, anyway. If I wanted to pursue this question on AW, the right area would be ...?

Or would it be better for me to take it up with my agent and lawyer, since they're getting paid to answer questions like that?

-- Josh

HapiSofi said:

Why should TICO have a reserve against returns at all? This makes no sense.

Click to expand...

Copying clauses from a standard contract used by a commercial publisher, without full understanding?
-Barbara

Coyote Man said:

Thanks, anyway. If I wanted to pursue this question on AW, the right area would be ...?

Click to expand...

I would think that either "Ask the Agent" or "Novels" would be more appropriate.

Or would it be better for me to take it up with my agent and lawyer, since they're getting paid to answer questions like that?

Click to expand...

An excellent idea, and they would be able to give you advice based on your specific situation, rather than general comments addressed to the more common cases.

There is great (but not infinite) variation among publishers in how they handle reserves against returns.

HapiSofi said:

Why should TICO have a reserve against returns at all? This makes no sense.

TICO is a POD operation, and like most PODs, they don't have a distribution deal that puts books onto bookstore shelves. Thus, TICO's books aren't going to be returned by bookstores, because they aren't being shipped to the stores in the first place. There are no returns to be reserved against, and no justification for them to be holding on to that portion of their authors' royalties.

Click to expand...

One of the things that a contract should do is allow for future changes in business models and conditions. TICO should have a reserves clause in its contract, or if it suddenly becomes wildly successful it can't establish a reserve... and therefore gets shut out of using the (broken and inexcusable, but it's what we have) distribution-with-returns system. Conversely, the author wants a reserve clause to establish limits on what TICO can do with reserves.

Not having seen the contract, I have no opinion on whether the reserve clause in question does what it should (from anyone's perspective). That said, my ordinary practice is to establish a ceiling reserve rate and a mandatory release date from the reserves, so that a particular dollar can't be held as a reserve for more than a commercially reasonable period (which varies among types of books). A Certain Commercial Publisher claims that its reserve clause allows it to hold a reserve until four years after termination of the contract when the book goes out of print, because that's the maximum period after which some returns might come in. Although that's an untenable position, it would cost a tremendous amount of money to challenge it... which is exactly what the publisher is hoping will deter anyone from doing so. That publisher also has the most hilariously arbitrary formula for calculating the reserve that I've ever seen.

In the best of all possible worlds, we wouldn't have a reserve system. As long as that system exists — even if a publisher's current practices don't use it — both the publisher and author need a reserve-against-returns clause in the publishing contract.