Draw against commission
A draw against commission is an advance paid to a salesperson before commission is earned, then offset against what they earn later. A recoverable draw behaves like a loan: shortfalls carry forward as a balance the rep has to work off. A non-recoverable draw behaves like a floor: shortfalls are forgiven at the end of each period.
A rep three quarters into a recoverable draw carrying an $18,000 balance is no longer being incentivised by their commission plan. They are working off a debt, and the next deal they close pays them nothing they can spend. Everything worth knowing about draws points at avoiding that position, and avoiding it starts with being explicit about which of the two kinds you are offering, in writing, before the rep signs.
A recoverable draw is an advance against future earnings. The rep receives a set amount each period, and every dollar of commission they earn goes first to clearing what has already been paid out. One consequence is worth spelling out to anybody accepting a draw: a genuinely strong month can produce an ordinary payday, because the balance gets settled before the rep sees anything extra. Sensible plans cap the balance or set a horizon on recovery, so that a slow first quarter cannot compound into a hole nobody can sell their way out of.
A non-recoverable draw forgives the shortfall at the close of each period. Nothing carries forward and the rep starts every month level. Economically this is a guarantee with a commission plan attached, and finance should budget it as guaranteed pay rather than as commission, because in any period where earnings fall below the draw the company is funding the difference and will not see it again. It is the right instrument for a new hire on a long sales cycle and an expensive one to leave running once that rep has a working pipeline. Many plans run a non-recoverable draw for a fixed opening period and switch to recoverable afterwards, which is a defensible shape as long as the switch date is in the document.
Two practical points that sit outside the arithmetic. Show the running balance on every commission statement, because a rep who discovers a four-figure deficit at quarter end will assume it was concealed whether it was or not. And treat recovery on termination as a legal question rather than a plan question: wage deduction rules vary by jurisdiction, minimum wage floors constrain what can be withheld from a final paycheck, and a clause stating the balance is repayable on departure is not the same thing as being able to collect it. Have the agreement drafted by somebody who knows the rules that apply where the rep works.
Three months on each kind of draw
A rep receives a $4,000 monthly draw. Commission earned comes in at $2,500 in January, $3,000 in February and $7,500 in March, for $13,000 across the quarter.
- January: earned $2,500, both kinds pay the draw
- $4,000 and $4,000
- February: earned $3,000, both kinds pay the draw
- $4,000 and $4,000
- March recoverable: $7,500 earned less a $2,500 balance
- $5,000
- March non-recoverable: shortfalls already forgiven
- $7,500
- Paid across the quarter, recoverable against non-recoverable
- $13,000 against $15,500
The $2,500 gap is exactly the two months of shortfall, repaid in one case and written off in the other. March is where the rep feels it: their best month of the quarter arrives as a $5,000 payday, and the plan has to have explained why before that statement lands.
The balance that no realistic quarter can clear
A $5,000 monthly recoverable draw against a rep whose pipeline has gone quiet accumulates a deficit fast. Six thin months can build a balance larger than a good quarter produces in commission, and at that point the plan has quietly stopped being an incentive and become an obligation. The rep knows it before anyone else does, which is why deficits and resignations arrive in that order. Cap the recoverable balance at something a strong period can genuinely clear, review any rep approaching the cap as a management issue rather than a payroll one, and decide in advance what happens when the cap is reached, because deciding in the moment means deciding while somebody is already looking for another job.
- What is the difference between a recoverable and a non-recoverable draw?
- A recoverable draw is an advance the salesperson repays out of later commission, so any period where earnings fall short of the draw creates a balance that carries forward. A non-recoverable draw is a guaranteed minimum: the shortfall is written off at the end of each period and nothing carries over. Over three months of $4,000 draws against $13,000 of commission, the recoverable version pays $13,000 and the non-recoverable version pays $15,500.
- Do you have to pay back a draw if you leave the company?
- It depends on the agreement signed and on the employment law where the salesperson works. Many recoverable draw agreements state that an outstanding balance becomes repayable on departure, but wage deduction rules and minimum wage protections limit what an employer can withhold from a final paycheck, and the limits vary considerably by jurisdiction. Anyone on a recoverable draw should read the exact wording before accepting it, and employers should have the clause reviewed locally rather than copied from a template.
Nearby terms
The long form lives in the guides: Commission structures.
Knowing the word is
the easy half
Commish pays draw against commission the way your plan describes it, shows the arithmetic on every line, and traces each payment back to the deal that earned it.