Deferring producer/broker commission payables means that the expenses are recognized in the month that an item is invoiced rather than the month it is paid. This means that agency commission is not overstated for the month, because the producer/broker expenses are recognized at the same time as the agency’s income.
In order to defer producer/broker commissions, an agency must be set up on an Accrual basis for agency-billed items, and producers/brokers must be set up on a Cash – Partially Paid or Cash – Fully Paid basis. Opting to defer producer/broker payables in Accounting Methods Configuration automatically creates the required Liability accounts Deferred Producer Payable and Deferred Broker Payable.
As an example, if the system is installed to defer producer/broker commissions and an item is entered with a producer associated, the Deferred Producer Payable account is credited. As the client makes payments on the item (or pays it in full, if producers are paid on a Cash – Fully Paid basis), the funds are transferred from the Deferred Producer Payable account to the Producer Payable for that particular producer. The workflow is exactly the same for brokers if the brokers are billed gross. If the brokers are billed net, they retain their commission rather than being paid commission by the agency, so deferring broker commissions would not apply.