Paying commissions - switching methods, help required!

Discussion in 'Growing and Managing a Business' started by SophieA, May 20, 2012.

  1. SophieA

    SophieA
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    Hi everyone I'm new here, sorry to wade right in with a question but Im a bit stuck!

    We currently pay our sales reps on sales made in one month, and would like to switch to paying only on paid invoices (to help cash flow and avoid further price rises)

    The problem is, how to we start this process - ie our customers take on average 60 days to pay (farmers, we won't change them!) and so for potentially 2 months the reps would receive no or very little commission while the new system is being implemented. They are all self employed, with families to support so this isn't an option but how do we cause as little disruption to the amount they take home as possible while switching to our new system?

    Any ideas would be gratefully appreciated! Thanks for your help.

    Sophie.
     
  2. gogreenbusiness

    gogreenbusiness
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    Hi Sophie, i am trying to read between the lines of your post, but i still can't understand how the 60 days terms that you will provide to your customers can affect the commissions of your sales reps? You said, you are giving commissions based on the monthly sales of your sales representatives. Thus, no matter how long the term you will give to your customers, it will still be booked as "sales" with corresponding "accounts receivable" so you can still give your sales reps their commissions.
     
  3. sigma

    sigma
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    This is very special case, so far i only know one company at my area is doing in this way, they only pay the commission to their salesman after get the full payment. However, they are still paying basic salary to them (it is very low, like USD200 per month).
    If you are thinking to get full time employee with totally no income for the first two months, i can only say good luck to you
     
  4. ArcSine

    ArcSine
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    Could you phase it in over time? Couple of approaches...

    1. You start by paying a commission upon the sooner of (a) customer payment, or (b) 30 days. Later it becomes the sooner of (a) or 40 days; then the sooner of (a) or 50 days; etc. Eventually it just becomes "upon customer payment".
    2. Or, you start with paying 75% of the commission 30 days after sale closing, and the remaining 25% upon customer payment. Later it becomes a 50% / 50% arrangement, then 25% / 75%, and then finally it's just 100% upon customer payment. (You could adjust to any set of percentages and timing that might be appropriate under the circumstances; I just picked some simple ones.)

    Just a couple of representative examples; many variations can be imagined. It's a compromise, of course---the phase-in spreads out the cash flow hit to the sales force, but equivalently it delays your company from receiving the full cash flow benefit immediately.
     
    #4 ArcSine, May 20, 2012
    Last edited: May 20, 2012

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