A sales commission draw is a financial arrangement used by many companies to ensure that salespeople have a guaranteed income while they work towards earning commissions based on sales performance. This system allows sales reps to receive an advance on future commissions, which is then deducted from the commissions they earn once they start generating sales.

There are two main types of sales commission draws:

  • Recoverable Draw: This type of draw is an advance that the salesperson must pay back from their future commissions. If the salesperson fails to earn enough in commissions to cover the draw, they may have to repay the difference.
  • Non-Recoverable Draw: In this case, the draw is not required to be paid back. Even if the salesperson does not meet their commission target, they keep the full amount of the draw as income.

Key aspects of a Sales Commission Draw:

Feature Recoverable Draw Non-Recoverable Draw
Repayment Requirement Yes, repaid from future commissions No, no repayment needed
Risk to Salesperson High, if sales targets aren't met Low, no repayment obligation
Benefit to Salesperson Steady income with performance-based earning Guaranteed income regardless of sales

"A commission draw ensures that salespeople have a consistent income stream, especially during periods of low sales, while still motivating them to perform at their best."