Home > Topics > Financial Accounting II > Del Credere Commission

Del Credere Commission 💸

The Problem:

  • Simran sells shirts on Credit to a customer.
  • The customer runs away (Bad Debt).
  • Who bears the loss?
    • Normally: Raj (Consignor) bears it (because he is the owner).
    • But Raj says: "Simran, you know the customers in Delhi. I don't. You should be responsible."

The Solution:

  • Raj pays Simran an Extra Commission called Del Credere Commission.
  • In return: Simran guarantees the collection of payment.
  • If a Bad Debt happens, Simran must pay Raj from her own pocket.

Types of Commission 💰

  1. Ordinary Commission: Paid on Total Sales. (For selling).
  2. Del Credere Commission: Paid on Total Sales (usually). (For bearing Bad Debt risk).
  3. Overriding Commission: Paid on Surplus Price. (For selling above invoice price / hard work).
Case 1: No Del Credere"Bad Debt Loss = Consignor's Loss."
↓
Case 2: With Del Credere"Bad Debt Loss = Consignee's Loss."
Calculation Base

Unless specified otherwise, Del Credere Commission is calculated on Total Sales (Cash + Credit). (Some authors argue only Credit Sales, but standard practice is Total Sales).

Quiz Time! 🎯

Test Your Knowledge

Question 1 of 5

1. Del Credere Commission is paid to cover the risk of:

Fire
Theft
Bad Debts
Transport Loss

💡 Final Wisdom: "Del Credere is like Bad Debt Insurance. The Consignor pays a premium (Commission) to transfer the risk to the Consignee." 🛡️

Next up: Accounting in Consignor's Books - The Real Accounting begins! 📒

← PreviousNext →