Posted in Marketing and Strategy Terms, Total Reads: 165
Definition: Draw on Sales Commissions
A draw on sales commission is an advance payment against expected earnings or commissions, especially given to a salesman in his or her tenure. A draw is given to sales representative, when representative is hired. It might happen that while selling any expensive goods or complex services might take a long time. This time range can vary from few months like three months to a year or more.
During this tenure, sales representative might experience flow shortages. The base salary is usually less than the total expected compensation. To help sales representative get through this period, company may pay a sum of money in advance called draw – an advance against future commissions.
The draw provides several benefits to your sales representatives. The benefits provided are
• It provides a wage during the period when the process of sales is being developed and commissions have not yet been earned.
• It reassures sales representative that the company trusts him and wants him to be successful in the area in which he is catering
• It ensures that cash flow is smooth across seasonal earnings.
There are 2 kinds of draw
1) Recoverable Draws
2) Non- recoverable Draws
• These are loans against future commissions or bonuses.
• If sales representative earns commissions which are less than the amount that he draws, company pay representative the commissions. However, company pays only that amount of draw so that the commission along with the draw totals the amount of the full draw.
• The outstanding draw amount gets on added from month to month.
• If earned commissions exceed the draw, the excess commission is used to repay the outstanding draw.
• Once the accumulated draw is repaid, all commissions are paid to the sales representative.
These are also loans against future commissions or bonuses.
• It guarantees sales representative a basic level of income for each commission period.
• If earned commissions are less than the draw amount, sales rep receives the draw amount.
• No accumulated draw is carried to the next commission period.
Recoverable draws are more advantageous for your company. Non-recoverable draws are more advantageous to sales representative. There is always a trade-off between the two