Agency Method

The Agency method is used where you buy a policy on behalf of a sub-broker or agent, perhaps because he does not yet have an agency with the insurer, so cannot process the business direct. You then take a share of the commission...

• Create a record for the broker as a Lead or Introducer, using the “Edit commission rates” button to set the percentage of the total commission he’ll get, as shown below.

• Create the sub-broker’s client as if it were a normal client on your system.
• Create the client’s policy, entering all the details as normal except...
• At the Premium screen select the payment method as ‘AG Agency Method, as Nett prem (CH) but invoiced to the introducer’, as shown below.

• When you get to the Sales Commission screen, select the sub-broker as the Lead or Introducer. This should automatically allocate the correct commission to pay-away to him, as shown below.

• When you then post to the accounts, if you first use the Preview option you should notice three separate postings, as shown below: one sales invoice to the sub-broker for the overall policy (i.e. which he’ll then re-address and re-sell to his client), one purchase order to the insurer, and another for the commission to the sub-broker.

Reconciling When the Agent Pays Net

The sub-broker will then owe you for the client’s policy (the sales invoice) minus his commission, which he’ll probably pay net. It would be simpler for you if he paid the sales invoice in full, and you paid him his commission separately, but this is unlikely to occur - so you’ll have to make the reconciliation as if it had.

So in the example above where you’re sharing the total commission with him, you might receive a cheque for the net sum of £3,771.43 (i.e. for the overall £4,000 invoice less his pay-away of £228.57). But in your accounts this will need to be treated as if it were the two separate sums for the full balance and the pay-away. So to reconcile it, starting from the Main Menu...

· Click the “Accounts” button

· Click the “Cashbook”

· Click the blue “Starburst” button to start a new reconciliation

· Create a Payment entry, as shown below, to pay-away the commission to the sub-broker (which effectively you’ve just done, because you’ve received the net sum of £3,771.43 for the policy instead of the full £4,000) and reconcile this against the £228.57 Purchase Order for his commission. Be careful to make sure this amount comes out of the bank account that you use for office expenditure – do not select the Client Bank A/C. For further general help with reconciliation see Accounts, Cashbook, Reconciling (Insurer and Adviser Accounts, etc).

· Now create a second Cashbook entry, this time for a Receipt for the full balance of the Sales Invoice (in this example for £4,000). Note that overall you have actually received the net sum (i.e. you were short by £228.57) but not actually had to pay the commission (i.e. you’re better off by £228.57), so overall the two discrepancies negate each other. Be careful to make sure the sales amount comes out of the Client Bank Account that you normally use for client money.

• In due course, you can also create the Cashbook payment for the insurer and reconcile that too.
• Then to finish off the whole lot, you’ll need to transfer your commission (via Accounts / Period End / Transferable) as you would in the normal way (see Accounts, Period End, Transferable)

The reason why you must handle a net receipt from an agent as two separate Cashbook entries is that the full amount of the commission for the overall sales invoice needs to be processed via the Client Bank account, whereas the pay-away commission to the agent would normally be paid from your Office Expenditure account.

The only way you could handle them net would be if you were to delete the agent’s pay-away Purchase Order and edit the Sales Invoice to only include your commission. This would work, insomuch as your own commission would correctly transfer from the Client Bank account to your Expenditure one, but if you did it this way although your accounts would be correct you’d have no record of the money you paid to the sub-agent.