Guide · 5 min read
Direct bill vs agency bill commissions: what to check on each statement
Who bills the insured decides which way the money flows, and that changes what can go wrong on the statement. A checklist for each.
TL;DR
- Direct bill: the carrier bills and collects from the insured, then pays you commission on a statement. You check that every commission you expect is there, at the right rate, on the right premium.
- Agency bill: you bill and collect, keep your commission, and pay the carrier the net. You check that the carrier’s statement of what you owe matches what you actually billed, and that the commission it credits you is right.
- The core question is the same either way: is the premium right, and is the rate right? What changes is who is holding the money, and so which kind of mistake costs you.
Most independent agencies deal with both billing types, often with the same carrier for different lines. They produce different statements and need different checks. This guide puts the two side by side. We’re the team building Lapidar, a commission reconciliation service that’s still in development; this is general information about how the two billing types usually work, and your agency agreements are the final word on the details.
The two, side by side
| Direct bill | Agency bill | |
|---|---|---|
| Who bills the insured | The carrier | Your agency |
| Who collects the premium | The carrier | Your agency |
| How you get commission | The carrier pays it to you | You keep it out of the premium you collected |
| What the statement shows | Commission the carrier is paying you | Premium you owe the carrier, less your commission |
| Typical mistake that costs you | A commission that’s missing or paid at the wrong rate | Paying the carrier net on something you never billed, or at the wrong commission |
Direct bill: what to check on each statement
On a direct bill statement the carrier lists the policies it collected premium on during the period and the commission it is paying you for each. The risk is all on one side: if a line is missing or short, nobody else is going to notice.
- Every policy you expect is there. New business and renewals effective in the period, and the next installment on policies paid in installments. Anything absent goes on a watch list; it may simply be next month’s.
- The premium is the right basis. Compare the premium on the line with your book. On installment plans, expect the premium collected in the period, not the full annual premium.
- The rate matches your schedule. For that line of business, and for new business or renewal, whichever applies. Use your schedule, not the rate printed on the statement.
- Negative lines match a real change. A cancellation or a premium-reducing endorsement produces a negative line. Check the return premium against your system, and check that the commission taken back is at the rate originally paid. Our guide to commission chargebacks goes into this.
- Nothing is paid twice. Same policy, same period, two lines. It tends to be reversed later.
- Every line belongs to you. A line you can’t match may be a policy that was never entered in your system, or one paid under a different agency or producer code.
The installment trap
Installments are the most common reason a direct bill line looks wrong when it isn’t. If commission is paid on collected premium, a monthly pay plan turns one commission into a series of small ones.
- Annual premium
- $2,400.00
- Rate on your schedule
- ×12.00%
- Commission for the term
- $288.00
- Premium collected this month
- $200.00
- Commission on this statement
- $24.00
What you can check on an installment policy is that the rate is right on every installment and that, over the term, the installments add up to the commission you expected.
Agency bill: what to check on each statement
With agency bill, you invoice the insured, collect the premium, keep your commission, and pay the carrier the rest. The carrier’s statement, often called an account current, lists the transactions it has on record for your agency in the period, with gross premium, commission and the net amount due.
The risk runs the other way. A mistake here usually doesn’t mean money missing from your account; it means you pay the carrier for something you haven’t collected, or you credit yourself the wrong commission.
- Every transaction on the statement matches an invoice you issued. Watch especially for endorsements the carrier processed that never made it into your system. You owe the net on them, and you haven’t billed the insured.
- Everything you billed is on the statement. If it isn’t, the carrier may not have processed the change yet, or it’s coming next month.
- The commission credited is at your rate. Same check as direct bill: the schedule, not the statement.
- The net is right. For each line, gross premium minus commission equals net. The total due equals what you’re about to pay.
- Return premiums are handled. When premium goes back to the insured, the carrier should credit you the net, and your commission on the returned premium comes back out.
- Open items carried forward are real. Old balances have a way of surviving because nobody has time to chase them.
| Policy | Transaction | Gross | Comm. 15% | Net due |
|---|---|---|---|---|
| EX-20114 | New | 3,200.00 | 480.00 | 2,720.00 |
| EX-20117 | Endorsement | 400.00 | 60.00 | 340.00 |
| EX-20121 | Return | −250.00 | −37.50 | −212.50 |
| Total | 3,350.00 | 502.50 | 2,847.50 |
In this example the arithmetic is fine. The problem is EX-20117: an endorsement adding $400 of premium that the carrier processed but that isn’t in the agency’s system, so it was never invoiced. Pay this statement as it stands and the agency sends $340 for premium it hasn’t collected. The fix is to invoice the insured, not to dispute the carrier.
Premium you collect on agency bill business generally isn’t your money until the commission is earned and the carrier is paid. Many states have rules about how those funds are held and accounted for. They vary, so check with your state and your accountant rather than relying on us.
When one statement mixes things
Some carriers send separate statements for direct bill and agency bill; some combine them. Either way, keep the two apart when you reconcile: they answer different questions. Also set aside lines that aren’t policy commissions at all, such as overrides, bonuses or contingent commission. Those follow their own agreements and won’t match a policy rate, so comparing them against your schedule only creates noise.
Which is harder to reconcile?
Neither, really. They’re hard in different ways. Direct bill statements tend to have more lines, with installments and small amounts, and the work is finding what’s absent. Agency bill statements involve money you are holding, so the work is making sure your records and the carrier’s agree before you pay.
Both start from the same place: your book, your schedule, and the statement, side by side. For what a full check involves and why it is hard at scale, see what to check when reconciling carrier commission statements.