Whoa!!! Nothing in the PA contract that royalties
There has been something that has bothered me about PublishAmerica saying they have to be paid before they owe royalties. Keep in mind I am not an accountant but I do have a Master's in Business Administration.
Paragraph 12 of my PublishAmerica contract
"The Publisher agrees to render and forward to the Author, in the months of February and August next succeeding the date of publication of said literary work, and thereafter semi-annual statements of account for so long as copies of the work subject to royalty are sold. With respect to copies sold, the statement shall indicate the price of each copy sold. The statement shall indicate both the total royalties payable to the Author on sales during the accounting period and the breakdown indicating the royalties attributable to specific kinds of sales. Author, may upon giving sufficent notice of no less than seven days, examine Publisher's records and accounts to the extent that such records and accounts are relevant to the publication of said literary work, which shall be done at Author's expense."
A sale is considered made when it is reflected in the accounting statements of the company. A sale is not contingent upon being paid.
PublishAmerica owes the author royalties as each sale is made. It accrues, which means the total builds up as an accounts payable to the author, and then is paid out twice a year.
There is NOTHING in the contract that says the royalties are not owed until PublishAmerica is paid. That's crucial. It doesn't matter that PA says that royalties aren't owed until the books are paid for. The contract says the the royalties are owed when the books are sold and the author will be paid every six months.
Here's what happens on a transaction basis.
Bookstore A orders 10 books written by Author B at $10.00 each on July 1 and Bookstore A says they will pay in 90 days.
PA has LS print books and ships.
PA goes to its accounting department and tells them to increase the sales account by $100 (10 x $10).
PA also tells accounting to increase the accounts receivable for Bookstore A by $100. (Accounts receivable just means that PA is now owed $100 by Bookstore A. All the other bookstores, Ingram's, and other customers have their own accounts receivable as well).
PA tells accounting to increase the 'royalties owed account' for Dee Power by $8. At that moment PA owes Dee Power $8 but the contract says they don't have to pay it until the month following the end of the royalty statement date, July 31. Now there are some other accounting entries that need to be done as well, such as accounts payable for LS for printing the books but they're not relevant to this discussion.
If Bookstore A orders the books on July 1 (or the 15th or even the 30th) and PA reflects that order on its income statement and balance sheet through accounting entries and I'm reasonably sure they do because that's standard accounting practice, then PA owes the author royalties for that royalty statement. It is irelevant whether PublishAmerica was paid for the books or not.
You can't have two sets of books, one where the sale is reflected and then another set that shows the royalties only due to the author when PA is paid by the bookstore. Take it to an extreme example. Major independent bookstore orders 1000 PA books. Sells all 1000. Doesn't pay PA for the books. Bookstore goes out of business. PA still owes the authors the royalties.
If PublishAmerica does not pay Author B the $8 at the time of the royalty statement PA is in breach of their contract. Period. End of story.
The ONLY way PA would not be in breach of contract would be if they conduct business on a cash basis and no one does that anymore except very small companies and individuals. When filing with the IRS a business has to tell the IRS that they are filing on a cash basis. You can't do both and you can't keep one set of books on a cash basis for one purpose and then double entry accounting basis for reporting purposes.
And for those authors wondering about whether they're being paid the correct royalties, authors have the right to examine the books of PA. " Author, may upon giving sufficent notice of no less than seven days, examine Publisher's records and accounts to the extent that such records and accounts are relevant to the publication of said literary work, which shall be done at Author's expense." The author, or representative of the author can examine such records and accounts relevant to publication of said literary work. It would be easy to tell if there are any owed royalties. And LS would have to cooperate under the "accounts are relevant to the publication" phrase. The author's representative (in this case probably a Certified Public Accountant) sends a letter to the accounting firm of LS requesting documentation of how many copies of the title LS printed. The accounting firm of LS replies with the number after examining the records of LS. Author representative compares the two figures.
If a group of authors wanted to get together and hire a CPA to verify their royalties, it would not be a hugely expensive matter.
Dee
www.BrianHillAndDeePower.com