Commission
A fee paid to an agent, broker, or salesperson calculated as a percentage of the value of a transaction they facilitate; the commission structure, rate, and trigger events must be clearly defined in contracts.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Commission?
A commission is a fee paid to an agent, broker, salesperson, or intermediary as compensation for facilitating a transaction or achieving a specific business result. Commissions are typically calculated as a percentage of the transaction value (e.g., 5% of the sale price) rather than a flat fee, creating incentive alignment between the agent and the principal.
Commission agreements must clearly specify several critical details: the commission rate, what triggers the commission (completion of the sale, introduction of the buyer, or something else), whether the commission is payable on gross sales or net of returns, and whether the commission is earned when the order is placed or when payment is collected.
Commission disputes are common in business. A salesperson may claim a 5% commission on a deal that never closed. A retailer may claim no commission is owed on items that were later returned. A broker may claim a commission even after the deal fell through due to the buyer's credit issues. All of these scenarios require clear contractual language.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Commission Rate
The percentage or amount to be paid for each transaction. This must be explicit. Vague language like "reasonable commission" invites disputes.Trigger Event
What must occur to earn the commission? Is it the signed order, the delivery of goods, the receipt of payment, or just an introduction to a potential buyer? This is the most common source of disputes.Calculation Base
Is the commission calculated on the gross sale price, the net sale price (after discounts or returns), or on profit? Is it adjusted if the customer returns merchandise?Timing of Payment
When is the commission paid? At order, at delivery, when payment is received? What happens if the customer never pays or goes bankrupt?Conditions or Exclusions
Are there types of sales that are commission-free? Is there a minimum volume threshold before commissions are earned?Real-World Example
A real estate broker negotiates a contract to sell a commercial property for $1,000,000. The contract states the broker earns a 5% commission. The broker bills the seller for $50,000. But the deal closes at $950,000 (due to a price reduction). The seller claims the commission should be $47,500 (5% of $950,000), not $50,000.
This depends on the contract language. If the commission is "5% of the final sale price," then $47,500 is owed. If the commission is "5% of the listed or initial price," then $50,000 might be owed. The contract must specify the calculation base.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Commission Payment TermsWatch Out For
Ambiguous "trigger events" for commission are a major source of disputes
If the contract does not clearly state when the commission is earned - order, delivery, payment, or introduction - the parties will argue about it when money is due.Commission disputes over returned merchandise are common
If the contract does not specify whether the commission is forfeited if goods are returned, the agent and principal will fight about whether the commission is owed.Commission disputes can trigger separate litigation
Commission disputes often result in lawsuits, collection actions, and counterclaims. These can be expensive to litigate, even for relatively small commission amounts.Don't let commission deadlines catch you off guard
Key dates tied to commissions - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Be specific about the commission trigger event
Do not just say "commission on all sales." Say "commission upon delivery of goods and receipt of payment by the company." This removes ambiguity.Specify the commission calculation base (gross, net, profit)
State whether commissions are on gross sales, net sales (after discounts or returns), or on profit. Address what happens if goods are returned or prices are adjusted.Reserve the right to adjust or withhold commissions for returns
Make it clear that commissions can be adjusted or forfeited if customers return merchandise within a specified period.Related Terms
Frequently Asked Questions
If I pay commission when the order is placed but the customer never pays, can I get the commission back?
Only if your contract says so. Many agreements state commission is owed only upon receipt of payment. If you paid commission upfront for a non-paying customer, you would need contract language allowing recovery.
What if a customer pays for 90% of the order but cancels the rest?
This depends on your contract. If commission is on "gross sales," you might owe commission only on the 90% that was actually sold. If it is on "orders placed," you might owe full commission. The contract must specify.