Read before you sign
It sounds obvious, but many agents sign commission agreements without thoroughly reading them. They skim the commission percentage, assume the rest is standard, and sign. Then they are surprised when a clawback kicks in, their territory gets reassigned, or their commissions are delayed.
Every commission agreement is different. Take the time to read and understand yours.
Key sections to focus on
Commission structure
This is the most important section. Look for:
- The rate: Is it a percentage or a fixed amount per sale?
- What it applies to: The full deal value, the monthly recurring value, or the net profit?
- Recurring vs one time: Does it pay ongoing or just once?
- When it is earned: At the point of sale, when the customer pays, or after a probation period?
Payment terms
- How often are you paid? Weekly, fortnightly, monthly?
- What is the payment method? Bank transfer, cheque?
- Is there a minimum threshold? Some agreements require a minimum commission balance before paying out.
- What reporting do you receive? Can you verify your commission calculations?
Clawback provisions
- What triggers a clawback? Customer cancellation, non payment, or refund?
- How long is the clawback period? 30, 60, 90 days, or longer?
- Is it full or pro rata? Do you return everything or just a portion?
Territory and exclusivity
- Do you have an exclusive territory? If so, how is it defined?
- Can the principal assign other agents to your territory?
- What happens if a customer in your territory contacts the principal directly?
Termination
- How much notice is required to end the agreement?
- What happens to your pipeline when the agreement ends?
- Are pending commissions paid out after termination?
- Is there a handover period?
Restrictive covenants
- Non compete clauses: Can you sell competing products during or after the agreement?
- Non solicitation clauses: Can you contact customers after the agreement ends?
- How long do restrictions last after termination?
Red flags
Watch out for:
- Clawback periods longer than 90 days
- Non compete clauses that are excessively broad
- Commission calculations that are vague or discretionary
- Termination clauses that allow the principal to end the agreement without cause and without paying pending commissions
- Agreements where the principal can change the commission rate at any time without notice
Get it in writing
Verbal promises mean nothing if they are not in the contract. If a principal tells you something during the negotiation that matters to you, make sure it is written into the agreement before you sign.