For: Independent equipment representatives, agency founders and manufacturers appointing reps.
The decision: Whether the agreement produces workable commission income and fair, clearly defined responsibilities.
60-second answer: Separate when a commission is earned from when it is payable, then define deductions, account attribution and post-termination treatment. Model the cash delay and required selling costs. A commission percentage is incomplete without the base, timing and risks attached to it.
Trace one order from quotation to commission statement
Pull the draft agreement, commission schedule, territory and house-account lists, sample statements, return and credit policies, and pipeline records. Ask the principal to illustrate the treatment of a normal order, partial shipment, cancellation, customer nonpayment and returned item. Label any examples hypothetical and reconcile the arithmetic to the actual terms.
| Term | What to define | Record needed to verify payment |
|---|---|---|
| Commission base | Included revenue and treatment of discounts, freight, taxes and services | Order lines and stated exclusions |
| Earned and payable events | Order acceptance, shipment, collection or other defined milestone | Status dates and statement references |
| Chargebacks | Permitted reasons, evidence, limits and challenge process | Linked credit or adjustment with explanation |
| Account attribution | Territory, house accounts, shared credit and account changes | Dated registration or agreed account list |
| Termination pipeline | Qualifying orders or opportunities, payment treatment and records access | Agreed pipeline record and subsequent activity |
Price the work the agency is expected to perform
List travel, samples, demonstrations, events, quotation support and any service coordination. An agency may avoid owning warehouse inventory, but its contract can still assign costs and duties. Likewise, a stocking distributor’s title and freight risk depend on actual terms rather than a universal “from the dock” rule.
Build a cash schedule using a realistic order-to-shipment and shipment-to-payment range. If payment depends on customer collection, identify how the agency receives status and challenges errors. Ask whether commissions can be delayed or reduced for events outside the representative’s control. A higher headline rate can be less useful than clear payment and deduction provisions.
Read exit terms while the relationship is healthy
Define notice, any cure process, treatment of accepted orders and developed opportunities, commissions after termination, records access and return of samples or confidential materials. Do not assume every pipeline item is payable or that the contract is the only source of rights. Have counsel assess applicable state requirements, definitions, governing law and enforceability for the places and activities involved.
Ask: Can a developed account become a house account mid-term? Who approves split credit? Which deductions can the agency actually influence? How are disputed adjustments reviewed? What prevents a shipped order from disappearing from the statement? Those questions make the income stream auditable without accusing the principal of misconduct.
Red flags include statements with unexplained net adjustments, no link to the underlying order, a payment trigger different from the sales presentation and no agreed view of the exit pipeline. Maintain a reconciliation of expected, earned, payable and paid commissions so a timing difference is not mistaken for a missing entitlement.
Prepare the agreement and the first reconciliation
- Walk the sample order cases through the proposed terms and cost the selling responsibilities.
- Resolve commission, deduction, attribution and exit definitions, with appropriate legal review.
- Retain the signed schedules and reconcile the first statement against order-level evidence.
- Track disputed adjustments to a documented resolution rather than carrying unexplained balances.
Continue with FEX
FEX editorial guidance: the decision tools and operating recommendations in this guide are FEX analysis. They are not manufacturer specifications, contractual entitlements or industry benchmarks.
Editorial update, October 7, 2026: Removed the unsourced chargeback anecdote, startup payback claims, state-count and penalty generalizations, and unsupported customary tail periods. Replaced them with a contract-specific commission reconciliation and legal review scope.
