Ask how an MGA calculates commission and you’ll often hear the word “report”. At month end, someone runs a report over the policies written, applies the rates, and produces a number for each producer. The number gets paid.
A report is a calculation made after the fact. Run it again next month, after an endorsement or a late cancellation, and it can come out different. Nothing in it says why. That’s why commission disputes are so hard to settle: there is no record of what was decided at the time, only a total that has been recalculated, adjusted or overwritten since.
Reports calculate. Ledgers record.
Your accounting books don’t work that way, and commission shouldn’t either. In a ledger, every event posts entries when it happens, and every entry balances. Commission becomes a set of entries posted against the policy transaction that caused it, with the rule that produced each one.
Here is what binding one syndicated policy looks like as ledger entries:
| Account | Rule | Debit | Credit |
|---|---|---|---|
| Premium receivable | Bind | $100,000.00 | |
| Carrier payable, Carrier A | 40% of the 60% carrier side | $24,000.00 | |
| Carrier payable, Carrier B | 40% of the 60% carrier side | $24,000.00 | |
| Carrier payable, Carrier C | 10% of the 60% carrier side | $6,000.00 | |
| Carrier payable, Carrier D | 5% of the 60% carrier side | $3,000.00 | |
| Carrier payable, Carrier E | 5% of the 60% carrier side | $3,000.00 | |
| Commission payable, Producer 1 | 60% of the 40% pool | $24,000.00 | |
| Commission payable, Producer 2 | 40% of the 40% pool | $16,000.00 | |
| Balanced | $100,000.00 | $100,000.00 |
When that policy cancels after four months, nothing is recalculated or overwritten. The engine posts reversing entries for the eight unearned months: each carrier share and each producer’s commission, pro rata, against a return premium payable. The original entries stay where they were. Anyone can see what was paid, what was clawed back, and why.
Statements fall out of the ledger
Once commission lives in a ledger, a statement is just a view of it: one payee, one period. Close the period and its statements are fixed. Reopen any month later and you see exactly what was paid, and the rule behind each line.
| Line | Payable |
|---|---|
| Net payable | $4,175.50 |
- Hinge point
- Bind
- Ledger
- Commission $2,760.00: D. Ruiz $1,656.00, J. Okafor $1,104.00
What changes
- Finance gets entries it can hand straight to the books, instead of a number to reconcile.
- Operations stops rebuilding, re-keying and re-checking the same numbers every month.
- Producers can check their own pay, line by line, without keeping a private copy.
You can try it yourself: the ledger on our home page recalculates as you change the premium, the carriers, the split, an override or a cancellation, and it stays balanced to the cent.
