Broker commission and fees in the ledger
How Achekam's Insurance pack posts a broker's commission and fees to their own income accounts while client premiums stay out of the broker's books.
By Achekam · · 4 min read · For Insurance businesses in South Africa, Nigeria, Kenya
Launching soon. The Industry CRM add-on described in this article is launching soon. This article describes it as it will work at launch.
A broker's revenue is not the premiums its clients pay. It is the commission insurers pay on those premiums and the fees the broker charges for its own work. Yet broker books often blur the two: premiums received and paid on, commission netted off, fees lumped in with everything else. By year end, nobody can say what the business actually earned from each source.
Achekam's Industry CRM, with the Insurance pack, keeps those lines apart from the moment a fee is quoted to the moment it reaches the ledger. This article explains how, and what your accountant will see, for brokers in South Africa, Nigeria and Kenya.
Two income accounts from the start
When a business switches on an industry pack, Achekam adds that industry's revenue accounts to its chart of accounts. For the Insurance pack, they are:
- Commission income (4270)
- Broker fees (4280)
If an account code the pack needs is already used in your chart for a different type of account, the activation is refused and the clashing account is named, so you can sort it out before going further. That is worth knowing if your chart has been customised over the years.
Keeping commission and fees in separate accounts answers questions every brokerage gets asked: how dependent is the business on insurer commission, and how much do clients pay directly for advice and service? When each kind of income counts as revenue is for your accountant to settle under IFRS 15 Revenue from Contracts with Customers, which sets the principles for reporting revenue from contracts with customers using a five-step model.
The starter catalogue
Switching on the pack also adds its starter items to your catalogue: commission, monthly and annual broker fees, and risk surveys. Each posts to the right one of the two accounts.
None of the starter items carries a price. That is deliberate across every industry pack: the business sets its own prices. Before you quote anything, open each starter item, set your fee, and adjust the description so a client reading an invoice understands what they are paying for.
From an accepted quotation to an invoice
When you quote a client for broker fees or a risk survey, the client can accept on a link by typing their name and ticking a box. Acceptance drafts the invoice in receivables. Issuing it at once needs an administrator's recorded authority; otherwise the draft waits for someone to check it and issue it.
A sent quotation is frozen. If the scope changes, a revision is made, so the invoice always follows the version the client actually accepted.
Each line names its account
Every invoice line names the revenue account and the product it sells. That is what carries commission to Commission income and fees to Broker fees without anyone choosing an account by hand. Where a line also has a cost, cost of sales is posted in the same journal.
A short worked example in words: a client accepts a quotation with an annual broker fee and a risk survey. The draft invoice holds two lines. When the invoice is issued, it posts to debtors, to income and to output VAT where VAT applies, with each line's income going to the account its catalogue item names. Commission, when you invoice it, goes to Commission income instead. The accountant sees each kind of income where it belongs, without a reclassifying journal at month end.
Fees that repeat every month
Monthly broker fees deserve a routine of their own. Decide who raises those invoices, on which day of the month, and how a new client's fee is added to the list. Then check, as part of each month end, that every client on a monthly fee has an invoice for the month. A fee that is agreed but never invoiced is income the business has simply given away, and it is surprisingly easy to miss when a client's file is busy with a claim or a renewal.
Premiums stay out of your books
The Insurance pack collects no premiums. It invoices only the broker's own commission and fees, and claims are decided by the insurer. A client's premium is never run through the pack's invoicing, so it never turns up in the broker's revenue.
Premium figures still live in the pack, typed from the insurer's documents, as where premiums and sums insured come from explains. They are a record of the client's cover, not income. Settlements on claims likewise belong to the client and the insurer; following a claim until the insurer decides covers how they are tracked.
What your accountant sees
At month end, the accountant should find:
- Commission income in its own account, invoice by invoice.
- Broker fees in their own account, with each invoice showing the service sold.
- No premiums in revenue.
- Debtors made up of your own commission and fee invoices, not premiums owed to insurers.
Two checks are still worth making. Compare commission income with the insurers' commission statements, because a missing or doubled invoice shows up there. And look at any income that has landed outside the two accounts. If something was posted to the wrong place, correcting a journal posted to the wrong account shows how to fix it without editing the original.
Before switching the pack on, ask your accountant to look over your chart of accounts for any clash with codes 4270 and 4280. Then price the starter items, issue a test invoice for a fee, and check where it lands. Once commission and fees post where they belong from the first invoice, the year-end question about what the business earned has a ready answer.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
