"Famous Last Words"

Getting Paid on Time (October 2002)

Dear Jim,

Our game is a big hit, I know we get royalties, but when do they arrive? My team is expecting bonuses!

Poor Paul

Dear Paul,

Your development contract probably says you get royalties four times a year. The industry standard these days seems to be that royalties are accounted quarterly, usually 45 or 60 days after the end of each calendar quarter.

That means royalties on sales that were made between July 1 and September 30 will be accounted and paid on November 15 or November 30.

But here’s an issue to consider. When is a sale actually made? Many publishers do not consider a sale as being made until the publisher collects payment from its customer. That means if a game is shipped from “BigPub” on August 1, with payment terms of “net 60” (the bill is due 60 days after the invoice is issued), and “SloPay” retailer doesn’t get around to paying until October 15, the sale will not be accounted and royalty paid until at least February 15. That’s over seven months from the day the game shipped to the store!

No one has ever been able to explain to me why developers should be paid based on collections rather than sales invoices. This puts the developer at risk for a portion of the bad debt of the publisher. Developers have no say in credit decisions - who is shipped and who is not. Since developers do not participate in the credit decisions of publishers (nor should they because they are developers!), it might be viewed as unfair to be penalized when payments are not made.