What’s a Chargeback? Tales from the Sales Team

by | Nov 4, 2020

In our Tales from the Sales Team series, we cover actual concerns and questions from real salespeople about their paycheck and sales commission.

“What’s with this deduction from my commission check?”
– Liz, an insurance agent

Having worked hard to sell home insurance policies to clients for the entire commission cycle, our hero, Liz was surprised to see a rather large deduction from her commission check.

Chargebacks are exactly what they sound like.

When she approached Joan, her supervisor, she learned that one of her previous customers canceled their 12-month policy after only three months. That triggered a chargeback on Liz’s subsequent earnings.

What’s a Chargeback?

Sometimes called a clawback, chargebacks are exactly what they sound like. If a salesperson earns commission in advance on a sale of a subscription meant to last a certain period of time, they may have to pay a portion of that commission back if the subscription is terminated before a certain point.

In Liz’s case, she had already earned the full commission for a year of policy payments immediately upon the sale. When the customer cancels the policy after only three months, she now has to pay nine months-worth of it back through her new commissions. This same method may also be employed with products sold and then returned after a short period of time.

Sales organizations of all kinds often use chargebacks and clawbacks in order to financially manage returns or early cancellations. For those businesses choosing to employ this strategy, it’s important to follow a few best practices when implementing the method into their sales commission plan.

Chargeback Best Practices

  • Know the Law: Local, state, and federal laws have a lot to say about how employers may dole out (and recollect) commissions. For instance, California’s laws very closely direct how commissions or wages may be recouped in the case of an early cancellation or return. Depending on where the employer and employee are based, there may be restrictions on how chargebacks can be employed. Familiarize yourself with these rules before developing a chargeback strategy of any kind.
  • Communicate the Details: Incorporate all the details of how commissions are distributed and how chargebacks can be enforced into a new employee’s contract. Ensure that every salesperson understands those details and communicate them again and again at each opportunity. If any salesperson does not fully understand how chargebacks are imposed, you may have to deal with unnecessary disputes that drain resources and time. Core’s application does offer an advanced dispute management feature that can help manage those questions but the fewer you have to deal with, the better. When salespeople feel the need to dispute earnings, it’s a sign of uncertainty about their continued wages; they may grow frustrated and seek other employment opportunities.
  • Balance with Other Incentives: Even when the sales team fully understands how and when chargebacks may rear their ugly heads, there may still be frustration and resentment among the ranks each time they come up. To help balance those chargebacks, offer other incentives to the team, such as bonuses and sales competitions that could offset losses.

Core’s powerful and flexible tools can help apply chargebacks however your team needs them. Contact us or schedule a free demo and we’ll walk you through how the application can work for you.

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