In one sentence
A minimum guarantee requires a party to pay at least a stated amount for a period or term, even if the activity-based fee is lower.
What it is
A minimum guarantee requires a party to pay at least a stated amount for a period or term, even if the activity-based fee is lower.
Who uses it
Licensors, licensees, media and brand companies, finance, legal operations, and revenue accounting.
How the calculation works
The guarantee shortfall is the applicable minimum less credited activity-based earnings, never below zero. Recoupment rules determine whether future earnings reduce an advance or prior shortfall.
Financial execution
Guarantees may be billed or paid on schedule, accrued over the coverage period, and reconciled against earned royalties at defined checkpoints.
Accounting impact
Treatment depends on payment direction and recoupability; balances may include deferred revenue, prepaid assets, receivables, payables, or current-period true-ups.
Example
A license has a $100,000 annual minimum and produces $82,000 of royalties. The year-end guarantee shortfall is $18,000.
Required inputs
- Guarantee amount and period
- Activity-based royalty or fee
- Payment schedule
- Recoupment and carry-forward terms
Common rules
- Periodic or term guarantee
- Recoupable or nonrecoupable treatment
- Cross-collateralization
- Shortfall timing, currency, and caps
Common exceptions
- Partial periods
- Amendments
- Termination
- Multiple properties
- Currency changes
- Ambiguous recoupment rights
How LicenseIQ supports it
- Models guarantees alongside activity fees
- Tracks schedules and recoupment balances
- Calculates shortfalls and period true-ups
- Provides statement and accounting evidence
Related concepts