Independent Sales Rep Agreement: Commission and Territory Protection (For Independent Reps)

If you earn your living on commission, your contract is your revenue model. An independent sales rep can do everything right—build pipeline, open doors, manage relationships—yet still lose income due to vague commission language, territory carve-outs, unclear crediting rules, or silent “house account” exceptions.

This guide breaks down how a sales representative agreement should define commission and territory protection in a way that actually protects you, the independent sales rep (service provider). You’ll learn which clauses matter most, what to ask for, and common loopholes that can quietly dilute your earnings.

You’ll also see how these terms often appear in a commission sales contract and a territory sales rep contract, and what to look for when using an independent sales rep agreement template.

Note: This article is educational and not legal advice. If you have a high-value book of business or multi-state territory, consider getting counsel to review your final agreement.

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Why commission and territory clauses are the “make-or-break” of your deal

Many independent reps focus on the headline commission percentage (e.g., 10% of net sales). But the more important questions are:

• When is a sale “earned”?
• Who gets credit if accounts overlap or leads come from the company?
• What counts as “net”?
• What happens if the company changes pricing, discounts, or product mix?
• Can the company sell into your territory directly or via another channel?
• What happens to your commission after termination?

A strong sales representative agreement answers these questions clearly and reduces the “interpretation” that leads to disputes.

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Part 1: Commission structure — what your agreement must define

Below are the commission terms that should be written in plain, objective language. If your agreement is vague, you’ll likely lose out during edge cases—chargebacks, renewals, channel conflicts, and end-of-contract payouts.

1) Commission rate and commission base (gross vs. net)

Most disputes start here. Your contract should define:

• Commission rate (by product line, customer type, or revenue band)
• Commission base: what dollar amount the commission applies to

In many commission sales contract forms, commission is paid on “Net Sales.” That’s not automatically bad—but “net” must be defined. Common deductions include:

• Discounts and coupons
• Returns and refunds
• Shipping and taxes
• Credit card or financing fees
• Bad debt / non-payment
• Marketing co-op allowances

Rep-friendly approach: define “Net Sales” as amounts actually received by the company for the product/services sold, excluding only (a) sales taxes, (b) shipping that is billed at cost, and (c) refunds/returns actually processed—then limit the rest.

Watch out for: “net of any costs, fees, allowances, rebates, and other deductions determined by the company.” That language is broad enough to shrink your base to almost nothing.

2) When commission is earned vs. when it is paid

Your agreement should distinguish:

• Earned: the event that creates the right to commission (e.g., customer signs contract, order accepted, invoice paid)
• Paid: the payment schedule (e.g., monthly after funds clear)

Some companies try to merge these concepts and say commission is “earned only when paid,” then delay payouts indefinitely.

Common structures:

• Paid on invoice (rep-friendly for cashflow, riskier for company)
• Paid on collection (common; acceptable if payout timing is tight)
• Split payment (e.g., 50% on invoice, 50% on collection)

Rep-friendly language: commission is earned upon the company’s acceptance of the order/contract (or customer signature), and payable within X days after invoice is paid (if using collection model).

3) Commission schedule: timing, reporting, and audit rights

A professional sales representative agreement should specify:

• Commission statements delivered monthly (or per pay period)
• Payment date (e.g., “no later than the 15th of the following month”)
• Detail required in reports (customer, invoice, SKU, amount, deductions, rate)
• Audit right: your right to verify accuracy

Audit rights matter more than most reps think. Even honest accounting teams make mistakes—especially with returns, territory mapping, and CRM attribution. Ask for a reasonable audit clause (e.g., once per year, with notice, during business hours).

4) Lead attribution and “crediting” rules (the hidden commission killer)

Commission disputes frequently happen because multiple people touched the deal: marketing, SDRs, other reps, managers, e-commerce, channel partners, or “strategic accounts.” Your commission sales contract should define:

• What counts as a “lead” vs. an “opportunity”
• How accounts are assigned in CRM
• How conflicts are resolved
• Whether the company can reassign accounts mid-cycle
• Whether you get partial credit for assist / influence

Rep-protective option: If you are the first to register an opportunity (or first documented contact) and remain active, you receive commission unless you materially abandon the account.

5) House accounts, named accounts, and carve-outs

Many territory sales rep contract disputes come from carve-outs like:

• “House accounts” (company-managed accounts)
• “Strategic accounts” (usually largest customers)
• “National accounts”
• “E-commerce / inbound orders”
• “Existing customers” (renewals or repeat purchases)

Carve-outs can be legitimate—but must be specific. If the agreement says “company may designate house accounts at its discretion,” you effectively have no territory.

Best practice: require a schedule/list of excluded accounts attached to the agreement and require written notice + a reason to add new exclusions.

6) Renewals, recurring revenue, and post-sale expansion

If you sell SaaS, services, consumables, or repeat-order products, define:

• Commission on renewals (yes/no; for how long)
• Commission on upsells/cross-sells
• Commission on price increases
• Commission on multi-year contracts (paid upfront vs. annually)
• Commission on maintenance/service tied to your sale

If the company wants to pay on first-year revenue only, negotiate clarity on whether you also earn on expansions you initiate.

7) Chargebacks, returns, and clawbacks

Chargebacks should be limited and predictable. Your agreement should define:

• Time period for returns that trigger clawbacks (e.g., 60–90 days)
• Treatment of partial returns
• What happens if the company causes the return (late delivery, quality issue)
• How disputes are handled

Rep-friendly approach: clawbacks apply only to bona fide returns or non-payment, not to pricing credits or goodwill adjustments that the company chooses to issue without your involvement.

8) Termination and “post-termination commissions” (critical)

Independent reps often lose commissions at the finish line. Your sales representative agreement should specify whether you get paid for:

• Orders in process before termination
• Orders placed after termination from accounts you developed
• Commissions on renewals after termination
• Deals where the contract was signed during the term but paid later

A common fair standard is:

• You are entitled to commission for any sale resulting from your efforts where the order/contract is accepted before termination, even if paid afterward.
• You are also entitled to commission for orders received within a defined “tail period” (e.g., 60–180 days) from accounts you actively managed.

This is especially important if you sell long-cycle products.

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Part 2: Territory protection — how to avoid getting undercut

Territory protection is how you preserve the economic value of your pipeline-building work. A territory sales rep contract should define the territory precisely and explain how the company will avoid channel conflict.

1) Define the territory with objective criteria

Territory can be defined by:

• Geography (states, counties, zip codes, countries)
• Industry/vertical (healthcare, industrial, hospitality)
• Customer type (SMB vs enterprise, distributors vs end users)
• Named accounts list

Avoid: “Territory as assigned from time to time.” That is not protection; it’s a moving target.

Better: “Rep has exclusive rights to solicit and service customers located in [defined region] except for accounts listed on Exhibit A.”

2) Exclusive vs. non-exclusive territories

• Exclusive territory: no other reps (and sometimes no direct company sales) in that area/account set.
• Non-exclusive territory: you can sell there, but others can too.

If you’re being asked to invest heavily (travel, demos, trade shows, relationship-building), exclusivity is often justified. If the company insists on non-exclusive, negotiate alternative protections, such as:

• better commission rate
• guaranteed lead registration
• written conflict rules
• minimum notice before changes

3) Territory “encroachment” and channel conflicts

The agreement should address common encroachment scenarios:

• The company sells direct into your territory
• Online orders originate from your territory
• A distributor sells into your territory
• Another rep claims the account because HQ is elsewhere
• The customer has multiple locations

Practical fix: add a “territory crediting rule” such as:

• Commission is owed based on bill-to address, ship-to address, or end-user location (choose one).
• For multi-location accounts, define whether the “master agreement” is credited to the rep who sourced it, and local locations follow that sourcing.

4) Lead registration and account protection

A lead registration clause is a strong substitute for exclusivity. It typically states:

• You register leads/opportunities in CRM (or by email)
• The company confirms acceptance within X days
• Approved leads are protected for X days (e.g., 90–180)
• No reassignment without cause (and notice)

This prevents the “Thanks for the lead—we closed it direct” problem.

5) Changes to territory: notice, cause, and transition

Companies sometimes restructure coverage. Your contract should require:

• Advance written notice (e.g., 30–60 days)
• A “grandfathering” rule for open opportunities
• Commission protection for pipeline you created
• If accounts are removed, clarify whether you receive a reduced “servicing commission” during transition

If territory can change at will with no pipeline protection, you’re carrying downside risk without control.

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Part 3: Other clauses that indirectly impact your commissions and territory

Even if the commission and territory clauses look good, these sections can change your real-world leverage.

Independent contractor status (and expense responsibility)

Your sales representative agreement should clearly state independent contractor status and address:

• expenses (travel, samples, trade shows)
• reimbursement policy
• taxes and insurance

If you’re expected to absorb significant costs, that should be reflected in commission rate or a monthly draw/stipend.

Non-solicit / non-compete / exclusivity

Some agreements restrict you from representing competing lines. If so, negotiate:

• narrower definition of “competitive”
• shorter duration
• specific product categories
• buyout option or higher commission to compensate

Pricing authority and discount approvals

If you can’t control discounting, your commission base is vulnerable. Ask for:

• a discount approval matrix
• a rule that commissions are calculated on the approved selling price (not later credits unless tied to returns)

Payment disputes and collection

If commission is paid on collection, confirm:

• who controls collections
• whether you can be penalized for delays outside your control
• whether the company must use commercially reasonable efforts to collect

Governing law, venue, and attorney fees

If a dispute happens, venue and fee-shifting matter. Many rep agreements are drafted to discourage reps from enforcing rights. At minimum, understand:

• where you’d have to bring a claim
• whether prevailing party gets attorneys’ fees
• whether arbitration is required

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Part 4: Practical negotiation checklist (rep-focused)

Use this checklist when reviewing an independent sales rep agreement template or a custom draft.

Commission checklist

• [ ] Commission rate is clearly stated by product/customer type
• [ ] “Net Sales” is tightly defined (limited deductions)
• [ ] Commission is earned on an objective event (order acceptance or contract signature)
• [ ] Commission is paid on a fixed schedule with reporting
• [ ] Chargebacks are limited in time and scope
• [ ] Clear rules for renewals, upsells, and expansions
• [ ] Written lead attribution/CRM crediting rules
• [ ] Post-termination commissions and tail period are included
• [ ] Audit rights exist and are workable

Territory checklist

• [ ] Territory is objectively defined (geo/vertical/named accounts)
• [ ] Exclusivity is stated, or lead registration substitutes for it
• [ ] Carve-outs (house/national accounts) are listed in an exhibit
• [ ] Clear rule for online/direct sales into territory
• [ ] Clear rule for multi-location or national customers
• [ ] Territory change requires notice and pipeline protection

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Common pitfalls to avoid in a commission sales contract

1. “Commission may be modified at any time”
   If the company can change commission unilaterally, you have uncertainty. Ask for notice + non-retroactive changes.

2. Undefined “net” or “profit-based” commissions
   Profit-based can be fine, but only if calculation is transparent and auditable.

3. No post-termination language
   Silence often means “no payment.” Get it in writing.

4. Broad house account discretion
   An undefined carve-out can swallow your territory.

5. No dispute process
   Add a simple written escalation process and timeline.

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Example clause concepts (plain-English, not legal advice)

To help you spot good drafting, here are examples of what “clear” looks like:

• Commission payment timing: “Commissions will be paid monthly within 15 days after the end of each month for invoices paid during that month.”
• Territory crediting rule: “Commission credit will be based on ship-to location within the Territory unless otherwise agreed in writing for named accounts.”
• House accounts exhibit: “Excluded accounts are listed on Exhibit A; additions require written notice and will not apply to opportunities registered before notice.”

If your current draft is missing this level of specificity, you’re relying on goodwill rather than contract rights.

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Choosing (and customizing) an independent sales rep agreement template

A good independent sales rep agreement template is a starting point, not a finished deal. Before you sign, tailor it to:

• your sales cycle length (30 days vs 9 months)
• whether you sell repeat-order products
• whether you are building a new territory from scratch
• whether the company sells online or through distributors
• how leads are tracked and approved

Templates frequently under-specify commission definitions and territory enforcement because they aim to be “general.” Your income is not general—make the contract match the reality of how deals happen.

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Conclusion: protect the value you create

Independent sales reps take real risk: you invest time and relationships upfront and get paid later. Your sales representative agreement should protect that investment by (1) making commissions objective, measurable, and auditable and (2) preventing territory erosion through clear exclusivity, lead registration, and carve-out controls.

If you want a faster way to generate and customize a sales rep contract with commission and territory terms that fit your situation, you can explore Contractable, an AI-powered contract generator, at https://www.contractable.ai.

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Other questions to keep learning

• What’s the difference between an independent sales rep agreement and an employee commission plan?
• How do I negotiate a fair post-termination commission “tail” period?
• Should commission be calculated on invoice date or payment date?
• What’s a reasonable definition of “Net Sales” in a commission sales contract?
• How do I handle commissions on distributor sales versus direct end-user sales?
• What are “house accounts,” and how can I limit them in a sales representative agreement?
• Can a company legally change commission rates after I’ve started working the territory?
• How do lead registration clauses work, and are they enforceable?
• What’s the best territory definition: bill-to vs ship-to vs end-user location?
• How should I structure commissions for renewals, subscriptions, and recurring revenue?
• What audit rights should independent reps ask for in a territory sales rep contract?
• What are the most common red flags in an independent sales rep agreement template?