Commissions: What happens when the seller leaves the company before the payment is made to the supplier?

At what point is a “sale” consumed, particularly when a sales commission must be paid upon completion of the sale?

This question can be answered if a Sales Representative Agreement is carefully drafted and tailored to the needs and realities of the business.

In many situations, a commissioned salesperson will present the company with a signed purchase order or other similar document showing that a sale has been made, and the company will accept the sale. Payment terms usually allow the buyer at least 30 days to pay, sometimes more. In some cases, a seller will not ship products until full payment is made. Also, in some cases, a buyer may be late in payment. Therefore, there is an interim period between when the signed purchase order is sent and the buyer actually pays. Let’s call this the “Interim Period”.

Now, in many cases, the salesperson or sales group responsible for this sale will terminate their relationship with the company during the Interim Period. Furthermore, let’s also say that perhaps the buyer has had financial difficulties and the delivery of the goods has been delayed. And, in the intervening period, maybe the company hires another salesperson to take over the territory from the salesperson (or sales group) that departed, and the new salesperson basically inherits the pending sale and has work to do to make sure payment is received and delivered. It’s done.

If payment is made during the Interim Period and delivery is made, is the departing salesperson/sales group entitled to commission, even though the departing salesperson was not with the company during the Interim Period?

Now, there are a few ways to deal with this, in practical terms. Some readers will say, split the commission between the departing seller who originally purchased the purchase order, and the new seller, who has to take time to handle the delivery and generally deal with the buyer. Practically speaking, both sellers have provided services to procure the sale and collect and ship the goods, so both must be compensated in practice.

So even though the original sales rep agreement doesn’t specify what should happen in this situation, there’s some logic in letting the parties figure it out.

However, the deceased seller does not have much influence in this situation. After all, the company has the proceeds from the sale, the new seller is eager for compensation, and the old seller may threaten to sue, but realistically, it’s not clear what their compensation will be as a percentage of the sale. Continue.

That’s why I encourage sales reps to include language in their sales rep contracts that describes at what point a sale is considered made and commissions are earned. If you specify that commission is earned when a sale is deemed to have been made, and the sale is defined as being made upon the submission of a purchase order signed and accepted by the business, then the commission amounts are “earned” in the sense that they have been accrued, and will be paid subject to the company receiving payment. This is a long way from discussing whether or not the commission is payable, or whether it should be split. Rather, it states that the commission is earned and paid as soon as the business receives payment from the buyer.

It doesn’t matter if you are a business that pays salespeople on commission or a salesperson on commission, there are many complexities involved in setting up commission payouts; first, the date the purchase order is submitted and approved; second, the date the commission is considered ‘earned’; and third, the date on which the commission will be payable.