At what point is a “sale” consumed, particularly when a sales commission is due at the end of the sale?

This question can be answered by carefully drafting a Sales Representative Agreement and tailoring it to the needs and realities of the business.

In many situations, a commissioned seller will present the company with a signed purchase order or other similar document showing that a sale has been made, and the company will accept the sale. Payment terms usually allow the buyer at least 30 days to pay, sometimes longer. In some cases, a seller will not ship products until full payment is made. Also, in some cases, a buyer may be late in paying. Therefore, there is an interim period between which the signed purchase order is sent and the buyer actually pays. Let’s call this the “Interim Period.”

Now, in many cases, the vendor or sales group responsible for this sale will terminate their relationship with the company during the Interim Period. In addition, let’s also say that perhaps the buyer has had financial difficulties and the delivery of the goods has been delayed. And, during the intervening period, the company may hire another seller to take over the territory of the departed seller (or sales group), and the new seller essentially inherits the pending sale and has work to do to make sure payment is received and delivery is made.

If payment is made during the Interim Period and delivery is made, is the departing salesperson/sales group entitled to the commission, even though the departing salesperson was not with the business during the Interim Period?

Now, there are a few ways to deal with this, in practical terms. Some readers will say, split the commission between the departing seller who originally took the purchase order, and the new seller, who has to take time to handle the delivery and generally deal with the buyer. Practically speaking, both sellers have provided services to procure the sale and to collect and ship the goods, so both must in practice be compensated.

Therefore, although the original agreement of the sales representative does not specify what should happen in this situation, there is some logic in letting the parties work it out.

However, the deceased seller does not have much influence in this situation. After all, the company has the proceeds from the sale, the new seller is eager for compensation, and the old seller may threaten to sue, but realistically it’s unclear what their compensation will be as a percentage of the proceeds from the sale.

That’s why I encourage sales reps to include language in their sales rep contracts that describes at what point a sale is considered to have been made and commissions earned. If the commission is specified to be earned when a sale is deemed to have been made, and the sale is defined as being made upon presentation of a signed purchase order accepted by the business, then the commission amounts are “earned” in the sense that they have been earned, and will be paid subject to the business receiving payment. This is a long way from discussing whether or not the commission is payable or should be split. Rather, it states that the commission is earned and paid as soon as the company receives payment from the buyer.

It doesn’t matter if you are a company that pays salespeople on commission or a salesperson on commission, there are many complexities involved in setting up your commission payout; first, the date the purchase order is submitted and approved; second, the date the commission is considered ‘earned’; and third, the date the commission will be payable.