audit rights
Definition
Audit rights give you the legal permission to inspect another party's financial records, books, or business data to verify that they are being honest with you under your contract. This clause is common in licensing deals, franchise agreements, and vendor contracts where one party owes money or royalties based on numbers you cannot directly see yourself.
Example
If you license your product to a distributor and they owe you 10% of every sale, audit rights let you hire an accountant to review their sales records and confirm they are paying you the full amount they owe.
Watch Out
Always negotiate to make the other party pay for the audit if it uncovers a significant underpayment, because this creates a strong incentive for them to be accurate from the start.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.