Issue link: https://htpgraphics.uberflip.com/i/246988
Payment Provisions Section 6 Figure 4 Question Answer How should VAT or other sales tax or duties be factored into the price? It is usual for the percentage royalty to be calculated from the sales price once VAT or other sales taxes or duties have been deducted. How will the licensee's costs for carriage, insurance, delivery, packing etc. be dealt with? If your licensee has to pay for the costs associated with delivering products to its customers, insurance or other associated charges, it is likely that your licensee will want to first deduct these costs from the sales price before the percentage royalty is calculated. You should resist this. Sometimes these are stated only to be deductible if they are separately set out on your licensee's sales invoice to its customer. Remember – the more deductions you allow your licensee to make – the less royalty you will receive. What happens if the licensee never actually receives payment from its customer? Ideally, as a licensor, you will want to specify that a royalty is payable on the amount which is invoiced by the licensee. This means that if the licensee is not paid by the customer you will still receive your percentage. Your licensee is likely to resist this provision and will want to only pay a percentage on the amounts it actually receives from its customer. Negotiation Tip If your licensee is resistant to calculation from amounts invoiced, you could argue that whether or not the licensee recovers payment from its customers is a matter for your licensee's credit control. You should not have to rely on whether or not this process is adequate. Another option to help your cash flow is to give credit if there are bad debts but not just if the licensee's customer is a slow payer. 38