Getting a commission advance can be a great way for businesses to access funds sooner when they have earned commissions coming their way. However, there are some common mistakes that people make when getting commission advances that can lead to problems. In this blog post, we’ll go over some of these commission advance mistakes so you can avoid them.
Not Reading the Fine Print
One big mistake when getting a commission advance is not thoroughly reading the fine print on the terms and fees. Commission advance companies will layout fees, interest rates, repayment terms, and other details in the fine print paperwork. But many people gloss over this information or only skim it briefly.
This can lead to surprises later on when you may owe more than you expected in fees and interest. Or you may find the repayment terms are stricter than you thought. Always carefully read the full terms of any commission advance agreement to avoid these unpleasant surprises.
Not Budgeting Repayments
When you take out a commission advance, you need to budget and prepare for the repayments that will be due. Failing to properly budget for the repayment of a commission advance can put you in a difficult financial bind later on.
Make sure you know exactly when repayments will be due, how much they will be each time, and factor this into your overall budget. Having the funds already set aside for repayments will prevent missed payments or defaulting on the advance.
Maxing Out Allowed Advance Amounts
While having access to your earned commissions upfront is helpful, taking the maximum allowed advance each time can be problematic. Only take what you truly need for the short term.
If you continuously max out a commission advance, you may leave yourself short on future commissions when they actually come in. Only use a reasonable portion of your earned commissions so you still have sufficient payouts in the pipeline.
Not Having a Backup Plan
Even with proper budgeting, things don’t always go according to plan. Illness, canceled contracts, or other disruptions could impact your repayment ability. Going into a commission advance without a backup plan is risky.
Always have a plan B whether that is an emergency fund, access to business credit, or ability to cut expenses temporarily. Having alternatives for repayment funds can save you if something disrupts your commission income.
Not Checking Commission Advance Rates
The fees, interest rates, and terms on commission advances can vary significantly between providers. But many businesses just go with the first provider they find instead of comparing offers.
Make sure to check commission advance rates across a few different companies. In addition to fees, compare factors like repayment terms, advance limits, and eligibility requirements. Finding the most competitive rate can save you money.
Relying on Advances Long-Term
Commission advances are designed to help bridge short-term cash flow gaps. If you find yourself getting a commission advance every month or continuously, it may indicate a larger cash flow problem in your business.
Don’t use commission advances as an ongoing solution. Look for ways to improve cash management overall in your business. Getting on top of underlying cash flow issues will create more stability over the long-run.
Not Having Commission Agreements
To get a commission advance, you need to have commission agreements already in place with clients or partners to show earned commissions are on the way. Lacking formal commission agreements can make getting an advance difficult or impossible.
Always have written commission agreements spelling out commission structures, payout details, policies, and more. These agreements prove to advance providers that you have commissions owed to you to repay advances.
Getting Too Large of an Advance
Some commission advance providers will allow you to take extremely large advances relative to your expected commissions. Be very cautious about getting too big of an advance relative to your upcoming payouts.
If you take more of an advance than you can realistically repay from your next commission checks, you’ll set yourself up for failure. Only take what you conservatively estimate you can repay from commissions in the short-term.
Missing the Repayment Window
Most commission advance agreements give you a specific window of time where the advance must be repaid such as 60 or 90 days. But it’s easy to let those repayment due dates sneak up on you.
Carefully note the repayment timeframe when you first get the advance. Mark the dates on your calendar and set payment reminders to avoid missing the window. Late repayments after the due date will incur expensive fees and penalties.
By being aware of these common commission advance mistakes, you can avoid running into issues. Be smart about using commission advances as a temporary cash flow bridge without creating long-term dependency or hardship. Carefully managing commission advances will allow you to maximize the benefits of accessing your earned commissions early.