Agency Bill vs Direct Bill Accounting Explained for P&C Insurance

Agency bill and direct bill accounting are often discussed as billing choices. In reality, they are accounting models with very different financial behavior.

Many MGA and wholesale accounting problems originate from treating agency bill and direct bill the same way. This article explains how each model works, how accounting should handle them, and why the distinction matters as organizations scale.

What Is Agency Bill Accounting

In agency bill, the MGA or wholesaler collects premium from the insured and is responsible for remitting the carrier portion.

From an accounting perspective, agency bill requires tracking:

• Gross written premium
• Commission income
• Fees and taxes
• Trust balances
• Carrier payables

Cash received does not equal revenue. Most of the premium belongs to the carrier and must be tracked separately until settlement.

What Is Direct Bill Accounting

In direct bill, the carrier collects premium directly from the insured. The MGA or wholesaler does not hold premium cash. Instead, they earn commission that is paid by the carrier.

Direct bill accounting focuses on:

• Commission receivable
• Commission income recognition
• Chargebacks and adjustments
• Timing differences between policy activity and commission payment

Treating direct bill like agency bill leads to distorted revenue and reconciliation issues.

Why the Difference Matters

Agency bill and direct bill create opposite accounting challenges. Agency bill introduces trust and cash management complexity. Direct bill introduces timing and reconciliation complexity.

When systems are not designed to handle both models correctly, accounting teams rely on spreadsheets to bridge the gap.

How Accounting Should Handle Agency Bill

Proper agency bill accounting must:

• Separate trust cash from operating cash
• Track carrier payables by policy and period
• Allocate partial payments correctly
• Support installments and premium finance
• Maintain audit ready trust balances

These requirements go beyond basic accounts receivable workflows. Learn how insurance specific systems handle this: Insurance Premium Accounting Software

How Accounting Should Handle Direct Bill

Direct bill accounting must:

• Track commission earned independently of cash
• Recognize commission based on policy activity
• Reconcile carrier statements accurately
• Handle commission adjustments and chargebacks

Without policy level accounting, commission reconciliation becomes manual.

Deep dive: Direct Bill Commission Reconciliation

When MGAs Handle Both at the Same Time

Most MGAs and wholesalers operate in mixed environments. They handle agency bill and direct bill across different carriers and programs. This is where accounting systems break down most often. Systems that assume one billing model cannot adapt cleanly to the other.

Related reading: Why MGA and Wholesale Insurance Accounting Breaks at Scale

Why Generic Accounting Systems Struggle

Generic accounting systems are built around invoices and payments.

They do not understand:

• Policy level allocation
• Earned versus unearned premium
• Trust accounting requirements
• Commission timing differences

As a result, teams use spreadsheets to track what the system cannot.

Related reading: Stop Using Spreadsheets

How Modern Premium Accounting Handles Both Models

Modern premium accounting systems treat agency bill and direct bill as first class accounting workflows.

They:

• Apply rules based on billing model
• Track receivables and payables by policy
• Automate journal entries
• Preserve a complete audit trail
• Generate carrier ready reporting

This allows MGAs and wholesalers to scale without changing their agency management systems.

Learn more: Premium Accounting Built for P&C MGAs and Wholesalers

How This Impacts Carrier Reporting and Bordereaux

Incorrect handling of agency bill or direct bill affects downstream reporting. Carrier bordereaux depends on accurate premium and commission accounting by period and program. Errors upstream create disputes and delays downstream.

Further reading: Bordereaux Accounting

Key Takeaways

• Agency bill and direct bill are fundamentally different accounting models
• Agency bill focuses on trust and carrier payables
• Direct bill focuses on commission receivable and timing
• Treating both the same causes reconciliation errors
• Mixed billing environments require insurance specific accounting
• Spreadsheets indicate system gaps, not best practice

What to Read Next

• P&C Insurance Accounting for MGAs and Wholesalers
• What Is P&C Insurance Accounting
• Direct Bill Commission Reconciliation in P&C Insurance
• Introducing Selectsys Premium Accounting for MGAs and Wholesalers

FAQs

What is the difference between agency bill and direct bill?
Agency bill means the MGA collects premium and remits it to carriers. Direct bill means the carrier collects the premium and pays commission to the MGA.

Why is agency bill accounting more complex?
Agency bill accounting requires trust accounting, carrier payables, and accurate allocation of cash that does not belong to the MGA.

Why does direct bill accounting cause reconciliation issues?
Direct bill commissions are often paid after policy activity, creating timing differences that generic accounting systems cannot track.

Can one accounting system handle both models?
Yes, but only if the system is built specifically for insurance premium accounting.