What is a commission agreement?
A commission agreement is a contract between a business and a person or company who sells or refers customers in return for a percentage of the sales they generate. It is used for commission-only sales agents, freelance sales representatives, affiliate and referral partners, and introducers who pass on leads. Because the agent is paid only for results, clear rules on what counts as a sale and when commission is paid are what prevent most disputes.
Key clauses explained
- Products and territory – what the agent may sell and where. This template is non-exclusive, so you can sell directly and use other agents.
- Commission rate and base – the percentage, and what it is calculated on: money actually received, net invoice value, or the gross sale.
- When commission is earned – on customer payment (safest for the business), on a signed order, or on invoicing.
- Payment timing – for example monthly, with a statement showing how each amount was calculated.
- Refunds and chargebacks – a clawback period during which commission on refunded sales is reversed.
- Expenses – usually paid by the agent unless approved in advance.
- Post-termination commission – whether the agent still earns on customers they introduced who order shortly after the agreement ends.
Worked example
An agent on 8% of net amounts received introduces a customer who pays $20,000 plus $1,600 sales tax. The commission is calculated on $20,000, not on the tax:
| Step | Amount |
|---|---|
| Net amount received (excluding tax) | $20,000 |
| Commission at 8% | $1,600 |
| Customer is refunded $5,000 within the clawback period | Commission reversed: $400 |
| Final commission | $1,200 |
Check figures quickly with the commission calculator.
How to use this template
- Enter the company's and the agent's legal names and addresses.
- Describe the products or services and the territory or market.
- Set the commission rate and choose what it is calculated on, when it is earned and when it is paid.
- Choose a clawback period and what happens after termination, and switch optional clauses such as confidentiality on or off.
- Download the PDF and have both parties sign before the agent starts selling.
The agent can bill each payment with the invoice generator, and the company can send a statement listing the sales covered.
Tips and legal points to check
- Define "introduced". Ask agents to register leads before a sale so there is no argument about who found the customer.
- Pay on cash received if your customers often pay late or cancel. Agents may prefer commission on signed orders, so agree what is fair.
- Agent or employee? Calling someone an independent contractor does not decide the question. If you control their hours and methods, local law may treat them as an employee.
- Agent protection laws. In the EU and UK, self-employed agents who negotiate sales of goods may be "commercial agents" with statutory rights, including compensation or an indemnity when the agency ends. Some US states have laws on when sales representatives' commissions must be paid after termination.
- Be careful with restrictions. Non-compete and non-solicitation clauses are limited or unenforceable in some places.
This template is general information, not legal advice. Rules on sales agents, commissions and worker status vary by state and country; ask a lawyer before relying on it for significant arrangements.
Frequently asked questions
What is a typical commission rate?
Rates vary widely by industry, product price and how much work the agent does – from a few percent on high-value goods to much higher rates on software or services. Agree a rate that reflects your margins and the effort involved; the commission calculator can help test different rates.
When should commission be paid?
Many businesses pay commission only after the customer has paid, which avoids paying on sales that never turn into cash. Others pay when an order is signed or invoiced. Whichever you choose, state it clearly and pay on a regular schedule with a statement.
What is a commission clawback?
A clawback lets the business recover commission already paid if the sale is later refunded, cancelled or charged back within a set period. It is usually deducted from future commissions or repaid by the agent.
Does an agent get commission after the agreement ends?
Under this template, commission earned before termination is always paid, and you can choose whether the agent also earns on orders from their customers for a few months afterwards. In some countries, including EU member states and the UK, commercial agents may have additional statutory rights when the agency ends.
Is a commission-only agent an employee?
Not necessarily. A genuinely independent agent who controls how they work is usually a contractor, but labels are not decisive – if the business controls hours, methods and exclusivity, local law may treat the person as an employee with minimum wage and other rights.
