Advance vs as-earned: the trade every producer picks, with the math

Advanced commissions are a loan against future premium, secured by policies that may or may not stay on the books. Here's the picture with example numbers; substitute your own.

Say a policy has a first-year commission of 1,000 at your level. On a 75 percent advance, you receive 750 when it issues, and the remaining 250 trickles in as the client pays months 10 through 12.

If the client stops paying at month 4, the carrier has collected four months of premium and paid you nine months' worth. The difference is the chargeback, and it comes out of your next commissions. Lapse enough policies and the account goes negative; the debit balance follows you between hierarchies.

As-earned pays you a slice each month as premium comes in. Nothing is owed back on a lapse because nothing was fronted. The cost is cash flow: month one is thin.

The honest trade:

• Advances make sense when your persistency is proven and you need the float to buy leads.
• As-earned makes sense when you're new, when your persistency is unproven, or when you'd rather grow slower than owe money.
• A middle path many use: a lower advance percentage, or as-earned on the carriers where your persistency is weakest.

Post your split and your 13-month persistency. Together they say whether the advance is a tool or a trap for you.