The question is probably going to come up, so I might as well explain it now.
When a normal publisher publishes a book, and it's offered for sale through bookstores, that book isn't really sold until it goes out the door under a customer's arm. The other books are returned, to make way for still newer releases.
So ... how does the publisher handle paying royalties when the publisher doesn't know how many will come back to the warehouse?
This is handled with a process called "reserve against returns." The reserve is the number that you don't get paid for, just in case they come back.
Publishers don't tell you exactly what their reserves are -- but as it happens I know at least one publisher uses this formula:
The first royalty period after the book is released, the reserve against returns is 100%. Maybe they printed 30,000 copies, and maybe bookstores ordered 20,000 of them -- but they aren't going to cut a check to you for royalties on 20,000 copies. They assume that ever single one of them will be returned.
Let's say that royalty months are April and November (which again is pretty standard). Let's say the book came out in July, that the cover price is $10, and the royalty rate is 10%. And let's say the author get a $5,000 advance against 10%. (I'm choosing these numbers for ease of math, not because they're necessarily real.)
And let's say that 10,000 copies sold (actually went out the door with customers, 50% sell-through) of the 20,000 that shipped.
Right, then.
Comes November, and those 10,000 copies would be a $5,000 check for Joe Author ($10,000 in royalties minus the $5,000 advance) but he gets a royalty statement showing $0.00 due, because of the reserve against returns.
At this particular publisher the reserve against returns is 100% in the first royalty period, and 75% in the second. And let's say that another 5,000 copies of Joe's book sold in the six months from November through April. So ... Joe would have $15K coming, but .... reserve against returns is 75%, so only $3,750 is credited to him. Subtract that from the advance, and his royalty statement says that he still has $1,250 in unearned advance.
From May through October, books get returned by one bookstore, ordered by another, and an additional 5,000 that have gone out the bookstore door in a shopping bag.
Total actually sold, to date: 20,000. This time around the publisher's reserve against returns is 25%. 25% of 20,000 is 5,000 books. So the publisher only reports a total to date of 15,000 sold, for total royalties of $15,000, minus the $3,750 already credited to him, minus the $1,250 in unearned advance, so Joe gets a check for $10,000. Happy day! He's earned out!
Now in the fourth royalty period after the book came out, the reserve against returns is 0%. Books have gone out, been returned, been redistributed, sold, and another 5,000 have been bought and paid for by readers.
So far: 25,000 sold. Royalties due, $25,000. Finally, we've gotten out from under the dead horse. In April two years after his book came out, Joe Author gets paid $25,000 minus the $10,000 he was already paid, for a nice $15,000 royalty check.
After this, the reserve against returns continues at 0% -- if 5,000 books ship during those six months, the publisher pays royalties for 5,000. (And by this point they have a pretty fair idea of how many will sell, because they have a history, and at this point, with 25,000 sold out of an initial press run of 30,000 they'll probably have gone back to press. Do you know what a 100% sell-through means? It means the publisher didn't print enough copies.)
So, reserve against returns at this one publisher: 100%, 75%, 25%, 0%. It takes you two solid years to get to the place where you're getting royalties as they happen. Normally, since you got an advance, this isn't that major a problem. You're living off the advance while the reserve against returns is catching up. It protects the publisher, and you do want to protect the publisher: If they stay in business that means they'll buy more of your books.
(Among other unrealistic things in this story: I set the advance low for a book that was going to sell those numbers. I wanted to show a book earning out because I'm a sucker for happy endings.)