Non-Recoverable Draw Definition
The non-recoverable draw is the typical sales draw against commission.
A draw amount is established for the sales rep, and if the rep's commissions earned are less than the draw amount, the rep is paid an amount equal to the full draw. In this non-recoverable scenario, the borrowed amount (the difference between earned commissions and draw amount) does not carry forward for repayment in the next period. This makes the draw non-recoverable by the company.
That said, the non-recoverable draw is better explained by breaking down the recoverable draw.
The recoverable draw results in excess draw amounts carrying over to the next period.
For example, if a sales rep is eligible for a $1,500 draw in August and ends up earning $500 in commissions, the rep earns the $500 in commissions plus $1,000 from the set draw allowance. This "borrowed" $1,000 from the established draw then carries over to September, and functions as a loan that needs to be repaid. If the rep ends up earning $3,000 in commissions, they must first pay back the $1,000 balance, bringing their earned total down to $2,000.
|MONTH||SET DRAW||COMMISSIONS EARNED||PAYMENT TO REP||BALANCE|
|AUGUST||$1,500||$500||$1,500 ($500 in commissions + $1,000 from the draw)||-$1,000 ($0 balance -$1,000 from the draw)|
|SEPTEMBER||$1,500||$3,000||$2,000 ($3,000 in commissions -$1,000 balance)||$0 (-$1,000 balance +1,000 repayment)|
Going back to the non-recoverable draw, the above situation would result in the rep taking home $3,000 in September commissions because the "borrowed" $1,000 would not have to be paid back.
When Would a Company 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.