Using Reserves to Delay Royalties
For physical revenue, it is a common practice to temporarily set aside part of the royalty, to cover the label for any potential returns in physical sales. This is commonly known as a Reserve. In this article, we will discuss how you can take this reserve, and how you can subsequently release it.
Taking Your Reserves
Via the Terms of your Contracts, you can specify under which conditions you wish to take a Reserve, and which percentage of the royalty you will take as a reserve.
In the below example, we have a 25% royalty rate for all Physical sales and apply a 20% Reserve. If, for example, there are £100 in Physical sales, the artist is due £25 in royalties but we will take a £5 ( = 20% of £25) Reserve. Meaning the artist will earn £20 in their upcoming statement, with £5 to be added in a later statement.
As a default, the Reserves will be calculated as Post-Calculation, meaning the reserve is taken as a percentage of the artist royalty. You have the option to set the Reserves calculation as Pre-Calculation, meaning the reserve is taken as a percentage of the original calculation input. In our previous example, this would result in a Reserve taken of £20 ( = 20% of £100). Reserves can be set to Post-Calculation via the Reserves tab of your Contract.
Releasing Your Reserves
Via the Sales Terms, you specify when to take Reserves. Via the Reserve Release Schedule of your Contract, you specify when these reserves taken should again be released. In the below example, we set a Reserve Release Schedule of 50 & 50, meaning 50% of reserves are released in the next royalty period & the remaining 50% in the 2nd period calculated after the initial period when the reserve is made.
It is important that the sum of the Reserve Release Schedule adds up to 100. If the schedule were to add up to less than 100, it would mean not all the reserves taken are subsequently released. If the schedule were to add up to more than 100, it would mean you release mor reserves than initially taken.
Furthermore, the released reserves transactions are set by Curve the same moment they are taken, so it is important the schedule is set the moment your statements are created. If you set a Reserve in the Terms tab, but do not set a Reserve Release Schedule, your reserves will never be released. If you set a schedule after a period has been run, you will need to manually enter any outstanding Reserves due to be released as an adjustment on the Transactions tab.