When does a brokerage recognize commission income?

A brokerage generally recognizes commission income when it is earned — when the policy is bound and effective and the brokerage has substantially performed its placement and service obligation — not simply when the cash lands. This is the core of accrual accounting, and it keeps revenue tied to the policies that produced it.

How that plays out by billing type:

• Agency bill — earning the commission often coincides with billing the client, since the brokerage is invoicing and collecting the premium. The commission is kept out of the premium remitted to the insurer.
• Direct bill — the commission is generally earned when the policy is in force and the amount is determinable, with the cash arriving later on the carrier statement. A commission receivable sits on the books in the meantime, cleared through reconciliation.

A few points that trip brokerages up:

• Don’t recognize on cash alone. In direct bill especially, cash trails earning by weeks, so cash-basis recognition understates revenue and severs the link to the receivable.
• Reverse on cancellation. If a policy cancels and commission is returned, reverse the income in the period the cancellation is known.
• Estimates are judgement. Provisions for expected cancellations or clawbacks involve judgement and depend on your framework.

Because the exact timing and any estimates depend on the accounting standards you report under, confirm your revenue recognition policy with your CPA — particularly for instalment and direct-bill business.

Revenue recognition runs on reconciled numbers: you can only recognize and clear commission you can confirm the carrier reported. For how that fits with statement matching and producer splits, see our carrier statement commission reconciliation guide.