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How to use a Non-Recoverable Draw Against Commission in Sales Compensation

Draws are common in incentive plans. Discover everything you need to know about using a non-recoverable draw against commission in your sales compensation plan.

6 min read

A non-recoverable draw is a common form of draw against commission. Like a regular draw against commission, a draw amount is established for each sales rep and reps are paid the difference between the draw and their total earned commissions. However, under non-recoverable draws, the borrowed amount (the difference between earned commissions and draw amount) does not carry forward for repayment to the company in the next period. This makes the draw non-recoverable by the company.

Non-recoverable draws are often used for new sales reps maintain a steady income while they are still being trained and on-boarded.

Recoverable vs. Non-Recoverable Draw

Draws against commission guarantee sales reps will be paid a certain amount in a given pay period. At the end of a pay period, if a rep's total earned commissions are less than the draw amount, the rep is paid the difference, so they earn the full promised draw amount in the period. 

Recoverable Draw Against Commission

Under a recoverable draw, the amount paid as recoverable draw (difference between total pay and commissions earned) carries over as a balance to the next pay period for reps to repay to the company.

For example, imagine a sales rep is eligible for a $1,500 draw for the pay period, and at the end of period, they end up earning $500 in commissions. At payout, the rep earns the $500 in commissions plus $1,000 from the set draw allowance—for a total of $1,500. This "borrowed" $1,000 from the established draw then carries over to the next pay period and functions as a loan that must be repaid by the reps.

If the rep ends up earning $3,000 in commissions the following month, they must first pay back the $1,000 balance, bringing their total payout down to $2,000.

MONTH SET DRAW EARNED COMMISSIONS PAYMENT TO REP BALANCE TO REPAY
1 $1,500 $500 $1,500 ($500 in commissions + $1,000 from the draw) -$1,000 ($0 balance -$1,000 from the draw)
2 $1,500 $3,000 $2,000 ($3,000 in commissions -$1,000 draw balance) $0 (-$1,000 balance +1,000 repayment)

 

Non-Recoverable Draw Against Commission

Under a non-recoverable draw, a rep doesn't pay back the borrowed money paid out from the established draw. In the above situation above, the rep was paid $1,000 in draw funds in the first month, but the following month earned $3,000 in commission.

In month two, the rep would be paid the full $3,000 in earned commissions and paid no draw money. The borrowed $1,000 from the prior month would not be paid back to the company. 

MONTH SET DRAW EARNED COMMISSIONS PAYMENT TO REP BALANCE TO REPAY
1 $1,500 $500 $1,500 ($500 in commissions + $1,000 from the draw) $0
2 $1,500 $3,000 $3,000  $0 

 

 

 

Why Offer a Non-Recoverable Draw?

  • For new hire sales reps: Especially in those industries and markets where the first commission check can often be months away. The company would rather have a non-recoverable draw that has a specific time frame attached to it, instead of boosting salary to ensure that living expenses are covered.
  • Sales reps in seasonal businesses: Where deals only come in every 12-18 months, or only during the last month of a fiscal year. This can be situations such as defense contracting or other multi-year sales cycle businesses.
  • For advancing team members: When team members are promoted into new responsibilities or territories. The draw might not be as long as a new hire agreement, but still works to bridge the gap as the sales rep builds an entirely new pipeline.

Taking Pay Mix One Step Further

Sales compensation is an important factor in the success of a sales organization. It's vital that companies develop sales compensation plans that motivate reps and drive the right sales behaviors. They must also consider the impact of pay mix and develop compensation plan that are competitive within the industry in order to attract and retain top talent. 

Learn more sales compensation best practices and start building your plan with our Ultimate Guide to Sales Compensation Planning