An agency clause is a paragraph of legalese in your publishing agreement. It gives your agent the right to collect all royalties (including advances) directly from the publisher. The agent then deducts her commission from that amount, and sends the remainder to you. The agency clause isn’t required by your publisher — it has no interest in where your royalties go, as long as it is fulfilling its contractual duties — however, no established agent will represent you without such a clause in your publishing agreement, for obvious reasons.
Most agency agreements will specifically authorize the agent to place the clause in your publishing agreement, and some will include the precise language. Even in the absence of specific authorization, the agent will ask that it be included in that agreement. In legal terms, the agency clause makes your agent a “third party beneficiary” of your publishing agreement, with significant rights, and will require the publisher to pay all royalties to the agent even if you terminate your relationship with that agent. Here’s a typical clause:
Author hereby authorizes Big Name Agency to collect and receive on behalf of Author all sums of money due under this Agreement, and receipt of such monies by Agency shall be a good and valid discharge of Publisher’s obligations to make such payments to Author. Agency is authorized and empowered to act on behalf of Author in all matters in any way arising out of this Agreement.
There are myriad variations on this basic clause. Some agreements will include “coupled with an interest” language — the notorious “forever agency” clause. Under this and similar language (e.g., “irrevocably assign”), if you terminate the agency and the rights to your book revert back to you from the publisher, you would be obligated to pay the agency a commission for all future contracts for the work, even if the agency did nothing to cause that sale. These provisions also may entitle the agent to a commission on any option book you later sell to the publisher. They must be deleted.
Because of the various traps in agency clauses, you either should negotiate the language of the clause when hiring your agent, or require that the agency clause be subject to your approval. Essentially, you have this right anyway, because you always can refuse to sign the publishing agreement negotiated by your agent, but it is preferable to avoid disputes. The following is a recommended agency clause:
The Author hereby authorizes the Author’s agent, Big Name Agency, to collect and receive all sums of money payable to the Author with respect to all rights in and to the Work. Publisher may rely on the said agent in all matters arising out of this Agreement until the Publisher shall have received written notice from the Author of the termination of such agency. Further, upon the receipt of such notice, the Publisher shall pay all further sums payable pursuant to this Agreement directly to the Author or to such other persons as the Author shall direct in writing.
Whether you can obtain this clause, or a similar author-friendly version, will depend on your negotiating power. Unfortunately, many agents are resistant to any changes in their agency clauses, fearing a potential loss of income, or loss of influence with the author and publisher.