Drafting a policy around penalties for a loss to a company - for Sales Associates

Hello Fellow HRs, Hope you all and your family are safe during this global pandemic.
I need help in drafting a policy around penalties for a loss to a company. The conditions as of now are Sales order cancellations (material ordered based on order booking confirmation from Sales Associates and is stocked at our place and customer cancels the order), Low Gross margins (we have standard gross margins), and delayed payment recovery from customers. Look forward to your inputs.
Harshada

You can consider giving incentives to Sales personnel, not on the basis of sales orders/sales generated by that particular person. Incentive should be worked out on the basis of
revenues generated by him.
(If he achieved sales order for 10 lacs and revenue generated for 4 lacs only, you may structure your company's incentive payment based on 4 lacs and not on 10 lacs).
In this way you can avoid penalties to Sales personnel , at the same time company management may be at ease!

Dear Harshada,

While I am not from your industry as such, the occasions for raising a penalty against the salespersons that you mentioned in your post are very aggressive. With this kind of penalty structure, salespersons will get demotivated.

A few of the salespersons who lack the competitive spirit may reconcile with the penalty structure and continue. A few others who will not accept will start quitting the employment. This will increase the cost of employee attrition. Have you compared this cost vis-a-vis the cost of recovery of the losses?

Has anyone studied the reasons for the cancellation of the orders by the customers?

You have described the cancellation as "material ordered based on order booking confirmation from Sales Associates and is stocked at our place and customer cancels the order". But then why order the material unless a receipt of Purchase Order (PO) is in hand? Rather than penalising the sales associate, why not to reduce the delivery turnaround time of the material dispatch?

For the delay in recoveries, have you calculated and thereafter analysed Account Receivable Turnover Ratio (ARTR)? What is the average ARTR for the last five years? Which salespersons or geographical location is responsible for dragging the ARTR down?

Yes, there has to be a fear of punishment. Nevertheless, any punishment has to be bounded by rationality. While a penalised employee may quit a job and get a new one, your company will have to bear the brunt of the consequences of the penalties. Please note it.

Thanks,

Dinesh Divekar