Publishers contract with booksellers to order a certain number of copies of a given title, generally at a significant discount off the list price. Typically, the contract includes a provision that allows the bookseller to return unsold copies; stores often will return that unsold inventory when the publisher's invoice comes due, usually ninety days after the books are shipped. In an average year, bookstores return about 30 percent of their books to publishers. Large discount outlets such as Wal-Mart and Price Club, which got into the bookselling business relatively recently, might send back as much as 40 percent of the copies they order from publishers.

Some publishers give booksellers a slightly better discount if the bookseller waives its right to return unsold copies, but few booksellers accept the additional discount because it makes better financial sense to get rid of titles that aren't selling.

Reserve Against Returns

Because of the industry policy of accepting returned books for a full refund, most publishers will place a “hold” on part of your royalties — that is, they'll keep a portion of your royalties from the first six-month reporting period until after the next reporting period. This is called “reserve against returns” and it can be up to 25 percent or more of your earned royalties. Publishers do this because if they overpay an author, it's very difficult for them to recoup the money.

Your publisher's reserve won't necessarily show up on your royalty statement. The statement may indicate that you earned $800 in royalties and that the publisher is holding $200 in additional royalties as its reserve. If the next reporting period shows less than $200 in returns, the difference will be added to your next check, minus the reserve for that reporting period.

Remainders

Remainders are deeply discounted sales of copies that haven't sold. Many contracts specify when a publisher can “remainder” its stock of your book, how and when the publisher has to notify you that it intends to do so, and what royalties, if any, the publisher will pay on remaindered stock. A typical remainder clause prohibits the publisher from offering its stock at remainder prices for two years after your book is first published. After that, if there is a significant overstock and the book is not selling well, the publisher can offer its stock to booksellers for as much as 70 percent (or even more) off the regular discount price. If the discount drops the price below the publisher's cost per copy, you probably won't receive any royalties. However, you may have the option to buy the overstock at the remaindered price.

Publishers usually won't issue royalty checks for small amounts, though the threshold can vary. If your book only earns $85 in royalties (after the advance is deducted), for example, the publisher usually will wait until the next reporting period and add the $85 to that next royalty payment.