If You Pay Commission When It's Signed, You're the One Carrying the Cancel

So this one is for anybody who runs a sales team on commission, whether that's door to door, solar, insurance, software, roofing, it doesn't matter. There's a decision buried in your comp plan that most owners made years ago without thinking about it, and it decides how much risk you're carrying every single week. When do you pay the rep? When the customer signs, when the customer's been served, or when the customer's money has actually landed?

And I came at this from lending, where you learn very fast that a signed agreement and collected money are two different assets with two different values. A signed deal is a promise with a cancel window on it. Collected money is money.

What happens when you pay on signed

Say you pay a rep at signing. The customer signs Monday, the rep gets paid Friday, and then the customer cancels the following week before you've done any work. Now you've paid a commission on revenue that never existed. So you either claw it back from the rep, which means a chargeback against their next check and a conversation nobody enjoys, or you eat it. Most businesses do some of both, and neither one shows up cleanly on any report they look at.

And it compounds, right? If your reps are paid on signed, they're paid to get signatures, not to get customers who stick. That's not a knock on reps. It's just what the plan is asking them for.

The ledger you actually need

So whatever you decide about timing, the thing you need is a ledger that tracks each deal through its states, the same way money has states. Signed. Serviced or installed. First payment collected. Cancelled before service. Commission paid. Chargeback owed. Chargeback collected. Every deal sits in exactly one of those at any given time, and once you have that, two numbers fall out that I'd want every week.

The first is unpaid commission liability, which is everything you owe reps on deals that have hit the pay trigger but haven't been paid yet. That's a real debt and it belongs on your cash forecast next to payroll.

The second is chargeback exposure, which is the total commission you've already paid on deals that are still inside their cancel window. That's money that might come back to you and might not, and if you've never seen that number, I'd guess it's bigger than you think.

The arithmetic

Let me make it concrete with round numbers you can swap for your own. Say you sign 100 deals in a month at $200 commission each and you pay on signing, so $20,000 goes out. Now say 15 of those cancel before service, and you put your own cancel rate in there. That's $3,000 in commission paid on deals that produced nothing. If you claw back and actually collect 60% of it, you've recovered $1,800 and you're out $1,200, plus 15 uncomfortable conversations. If instead you pay on first payment collected, you paid $17,000 to begin with, the 15 cancels never triggered a commission, and there's nothing to claw back. Same reps, same customers, $3,000 less risk, and zero chargebacks to chase.

Now, paying later has a real cost too, which is that your reps wait longer for their money, and good reps will leave for a plan that pays faster. So a lot of businesses land in the middle. They pay a portion at signing and the balance at collection, or they pay at install. There's no right answer for everybody. There is a wrong answer, which is not knowing what the two numbers are.

Net signed, not gross signed

One more thing, because it's related. If you report signed deals as your production number, report them net of the ones that cancelled before service. Gross signed makes the month look great and then quietly falls apart in next month's cancels. Net signed is the number that actually turns into revenue, and it's the number your reps should be ranked on, because it rewards the ones whose customers stay.

How this gets done without a spreadsheet

All of those states already exist across your systems. The signature is in the CRM, the service date is in the job system, the payment is in the processor or the books, and the commission is in payroll. What's missing is one place that reads all of them and walks each deal through the ledger. That's what Liaison does with the tools you've already got. Every week it gives you net signed against gross, unpaid commission liability, and chargeback exposure, and each number opens to the deals behind it, so when a rep's chargebacks are climbing you see the six customers, not just the total.

If your comp plan pays on signed and you've never seen your chargeback exposure as a number, let's run it on your last quarter. It's usually a short conversation after that.