You just got your royalty statement, and you look down and see that the publisher has withheld a portion of your royalty payments as a reserve for returns. What does this mean?
Basically, the publisher is holding back what is hopefully a small percentage of your royalties in case any of your books are returned by the booksellers during the next royalty period (and there are always going to be a few books returned). In another weird quirk of publishing, booksellers aren't actually buying books outright from publishers, but instead on consignment on a fully returnable basis.
There's a lot more to this, but the things to remember in negotiating your contract are to try to limit this reserve to a percentage of the gross amount of royalties payable to you, and/or to limit the publisher from holding such reserves for more than a few accounting periods.
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