Commission Lifecycle¶

The Incentive Compensation Engine processes commissions through a sequence of stages, starting with an ERPNext Sales Invoice and ending with a completed Commission Payout.

The complete lifecycle is:

ERPNext Sales Invoice
        ↓
Commission Calculation
        ↓
Commission Ledger
        ↓
Commission Statement
        ↓
Review & Approval
        ↓
Commission Payout
        ↓
Payment

This workflow separates calculation, historical recording, review, approval, and payment into distinct stages.

Lifecycle Overview¶

The main records involved are:

Commission Plan
       │
       ├── Commission Rules
       │
       ▼
ERPNext Sales Invoice
       │
       ▼
Commission Calculation
       │
       ▼
Commission Ledger
       │
       ▼
Commission Statement
       │
       ▼
Commission Payout

Each record has a different responsibility.

Stage	Record	Purpose
Configuration	Commission Plan	Defines the overall commission context
Configuration	Commission Rule	Defines when and how commission is calculated
Configuration	Commission Payee	Identifies who receives commission
Calculation	Commission Ledger	Records the calculated commission
Review	Commission Statement	Groups eligible commissions into a period-based snapshot
Payment	Commission Payout	Tracks the actual payment

1. Configure the Commission Plan¶

The first step is to configure a Commission Plan.

The plan defines:

Company
Currency
Valid From
Valid To
Status

For example:

Plan Name: Standard Sales Commission
Company:    Your Company
Currency:   INR
Valid From: 2026-10-01
Valid To:   —
Status:     Active

The plan establishes the context in which Commission Rules are evaluated.

2. Configure Commission Rules¶

Commission Rules are created under the Commission Plan.

A rule determines:

what the commission applies to
which transaction condition must match
how the commission is calculated
which rule takes precedence when multiple rules match

For example:

Rule Name:         Demo Item Commission
Rule Applies To:   Item
Item:              Smartphone
Calculation Method: Percentage
Rate:              5%
Priority:          1
Enabled:           Yes

The rule is evaluated when an eligible Sales Invoice is processed.

3. Configure the Commission Payee¶

Create a Commission Payee representing the person or partner who receives the commission.

For example:

Payee Name:  Test Salesperson
Payee Type:  Employee
Sales Person: Test Salesperson
Enabled:     Yes

The Commission Payee connects the commission system to the corresponding ERPNext Sales Person or Sales Partner.

4. Submit the Sales Invoice¶

Create and submit an ERPNext Sales Invoice.

The invoice should contain the sales transaction that can match the commission configuration.

For example:

Item:       Smartphone
Quantity:   1
Rate:       ₹10,000
Amount:     ₹10,000

The Sales Team on the invoice identifies the Sales Person and their contribution.

For example:

Sales Person: Test Salesperson
Contribution: 100%

When the invoice is submitted, the Incentive Compensation Engine processes the commission event.

5. Calculate the Commission¶

The commission engine evaluates the submitted Sales Invoice.

Conceptually:

Sales Invoice
      ↓
Find Active Commission Plan
      ↓
Find Matching Commission Rules
      ↓
Evaluate Rule Priority
      ↓
Resolve Commission Payee
      ↓
Calculate Commission

For a 5% commission on ₹10,000:

Base Amount = ₹10,000
Rate        = 5%

Commission  = ₹500

The calculation result is then recorded in the Commission Ledger.

6. Create the Commission Ledger Entry¶

The engine creates a Commission Ledger entry containing the calculation snapshot.

For example:

Sales Invoice:       ACC-SINV-2026-00021
Commission Payee:    Test Salesperson
Commission Rule:     Demo Item Commission
Commission Plan:     Standard Sales Commission
Calculation Method:  Percentage
Base Amount:         ₹10,000
Rate:                5%
Commission Amount:   ₹500
Entry Type:          Commission
Status:               Calculated

The ledger entry is immutable.

It preserves the historical calculation even if the Commission Plan or Rule changes later.

7. Create a Commission Statement¶

Once commission ledger entries are available, create a Commission Statement.

Select:

Commission Payee
Company
Currency
From Date
To Date

For example:

Commission Payee: Test Salesperson
Company:          Your Company
Currency:         INR
From Date:        2026-10-01
To Date:          2026-10-31

Save the statement.

It starts in:

Draft

At this point, the statement has selection criteria but has not yet captured its ledger entries.

8. Generate the Statement¶

Open the saved Draft statement and click:

Generate Statement

The application searches for eligible Commission Ledger entries matching:

Commission Payee
Company
Currency
date range

Entries already included in another non-cancelled statement are excluded.

If eligible entries are found, the application:

calculates the statement totals
records the generation date
stores the selected ledger entries
changes the statement status to Generated

For the example:

Gross Commission = ₹500
Adjustments      = ₹0
Net Commission   = ₹500
Status           = Generated

The generated statement is now an immutable snapshot.

9. Submit the Statement for Review¶

The Generated statement can be submitted for review.

The transition is:

Generated
    ↓
Under Review

This separates the calculation stage from the review stage.

The reviewer can inspect the statement totals and included ledger entries.

10. Approve the Statement¶

Once the statement has been reviewed, approve it.

The transition is:

Under Review
    ↓
Approved

The approved statement is ready to be finalized.

11. Post the Statement¶

Post the approved statement.

The transition is:

Approved
    ↓
Posted

A Posted statement represents a finalized commission amount and can be used to create a Commission Payout.

12. Create the Commission Payout¶

Create a payout from the Posted statement.

The payout uses the statement's Net Commission as its amount.

For example:

Statement Net Commission = ₹500
Payout Amount            = ₹500

The payout starts in:

Pending

13. Process the Payout¶

Move the payout to:

Processing

This indicates that payment processing has begun.

When the payment has actually been made, enter:

Payment Date
Payment Reference

For example:

Payment Date:      2026-10-05
Payment Reference: UTR-TEST-0001

Then mark the payout as Paid.

The transition is:

Processing
    ↓
Paid

The associated Commission Statement is also marked Paid.

Complete Example¶

A complete example can be represented as:

Plan
│
└── Standard Sales Commission
        │
        └── Rule
             │
             └── Smartphone → 5%
                    │
                    ▼
              Sales Invoice
              ₹10,000
                    │
                    ▼
              Commission
                ₹500
                    │
                    ▼
           Commission Ledger
                    │
                    ▼
         Commission Statement
               ₹500
                    │
                    ▼
               Generated
                    │
                    ▼
             Under Review
                    │
                    ▼
               Approved
                    │
                    ▼
                Posted
                    │
                    ▼
          Commission Payout
               ₹500
                    │
                    ▼
              Processing
                    │
                    ▼
                 Paid

Lifecycle State Summary¶

Commission Statement¶

Draft
  ↓
Generated
  ↓
Under Review
  ↓
Approved
  ↓
Posted
  ↓
Paid

Additional cancellation paths exist from the appropriate workflow stages.

Commission Payout¶

Pending
   ↓
Processing
   ↓
Paid

Failure and cancellation paths are also supported:

Pending
   ├──→ Processing
   └──→ Cancelled

Processing
   ├──→ Paid
   └──→ Failed

Failed
   ├──→ Processing
   └──→ Cancelled

What Happens If the Sales Invoice Is Cancelled?¶

A commission-generating Sales Invoice can later be cancelled.

The application does not modify the original Commission Ledger entry.

Instead, it creates a separate reversal entry.

Conceptually:

Original Commission
       +
Reversal
       =
Net Historical Effect

For example:

Original Commission → +₹500
Reversal            → -₹500

The original commission remains part of the historical audit trail while the reversal records the effect of the cancellation.

Why the Lifecycle Is Split Into Stages¶

The application deliberately separates the lifecycle into distinct records.

Calculation¶

The commission engine determines what commission was earned.

Sales Invoice
    ↓
Commission Ledger

Review¶

The calculated commissions are grouped into a statement for a defined period.

Commission Ledger
    ↓
Commission Statement

Approval¶

The statement moves through review and approval before becoming Posted.

Payment¶

The Posted statement becomes the basis for an actual payout.

Commission Statement
    ↓
Commission Payout

This separation provides a clear audit trail and prevents the calculation process from being confused with the payment process.

End-to-End Audit Trail¶

A completed commission can be traced through the system:

Sales Invoice
     ↓
Commission Plan
     ↓
Commission Rule
     ↓
Commission Payee
     ↓
Commission Ledger
     ↓
Commission Statement
     ↓
Commission Payout
     ↓
Payment Reference

This makes it possible to start with a payment and trace it back to the commission calculation and original sales transaction.

Next Steps¶

The complete lifecycle is composed of several focused workflows.

Continue with: