Business Finance
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Question Description

Need help with my Business question - I’m studying for my class.

What is the difference between a recoverable and non-recoverable draw?

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Final Answer

A recoverable draw (also known as a draw against commission) is a set amount of money paid to the sales representative by the company at regular intervals. When a salesperson′scompensation is derived largely from commissions, a company can pay the salesperson a substantial sum of money even before the commissions are earned. This payment method provides the salesperson with funds with which to plan and pay for basic living expenses. When the commissions are earned, the salesperson pays back the draw.

When the amount of commission earned is more than the draw, the salesperson receives the draw amount plus whatever is left over after the draw balance is paid off. When the commission earned is less than the draw, the salesperson receives the draw amount only.

The draw activities are recorded in a spreadsheet under the categories: commission earned, pay cheque amount and draw balance:

Pay Period Commission Earned  Pay Cheque Payment  Debt  Draw Balance
(Week Ending)

Mar. 1  $400 $1,000 $600  $600
Mar. 8  $600 $1,000 $400  $1,000 
Mar. 15 $1,200  $1,000   <$500>  $300 
Mar. 22  $1,500  $1,000  <$500>  $300
Mar. 29 $1,400  $1,100  <$300>  $0

A non-recoverable draw occurs when the salesperson′s commissions are less than the draw amount and the draw monies are not returned or carried forward. The salesperson gets to keep the draw amount.

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