Commission based agreements

A commission agreement also sometime referred to as an affiliate, introducer or referral agreement, is a type of agreement whereby an individual or company agrees to make a payment to another in return for their goods or services being referred on by that intermediary to them. This type of agreement is different to an agency

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bjone-sbA commission agreement also sometime referred to as an affiliate, introducer or referral agreement, is a type of agreement whereby an individual or company agrees to make a payment to another in return for their goods or services being referred on by that intermediary to them. This type of agreement is different to an agency agreement as the party simply refers third parties, and does not actively sell a product or service.

Affiliate or introducer agreement

Once the third party has been referred, the company who provides the goods or services discusses the relevant business opportunity, and the referrer does not enter any further relationship with the potential customer.

This type of agreement has become particularly popular in the current financial and technological climate as companies attempt to look at alternative advertising and revenue creating solutions without necessarily having a large budget.

For example, a party may enter a referral fee agreement with a party in a different region in which they have previously not done any business, and such an arrangement can be cheaper than expanding or setting up a new office in that particular region.  Affiliate agreements are also very popular on the internet where the source of a visitor can be tracked easily and the referring site may be paid a small amount per click through from it’s site to the selling site.

Payment of commission or introduction fee

In terms of the payment or commission, this can be structured in a number of different ways. The most common solutions are payment as a fixed fee per introduction or on a percentage basis.

However, it is important to note that there are a number of variables when it comes to payment, and referral fee agreements often contain extremely detailed payment provisions which will include terms about payment being due perhaps based on proof that a visitor came from the introducer or perhaps only if the visitor or potential customner actually buys. Both introducer and introducee may well want access to documents and information in order t verify compliance by the other party.

Other variables include how the payment will be divided between the amount paid simply for introduction and then amount paid should the introduction lead to a new client order.  There may also be time considerations to take into account. A typical example of this being problematic would be an introducer agreement for a property purchase. The purchaser may not initially decide to proceed but may come back many months later and the seller may then argue that the initial introduction has become disconnected by the delay and that an introduction fee is not then due.

Given the potential complexity of the commission structure, the arrangements are often dealt with in a separate schedule which forms part of the referral fee agreement.

Commission based contract clauses

Although each referral fee agreement will differ and is dependent on the facts of the case, there are a number of common clauses that are required in addition to payment provisions.

Firstly, it is imperative that the agreement adequately outlines the purpose of the terms. For example, it must outline what is being referred and what constitutes a referral. It should also explain the process of how information is referred and any relevant timescales.

The agreement should also clearly describe the responsibilities of both the referee and the referrer, and their associated liabilities and indemnities.

Given the nature of the agreement, it is also imperative that the agreement has detailed confidentiality provisions. This is because of the need to disclose certain information related to the business by the referrer to enable them to sufficiently talk about the goods or services to potential new customers. Data protection is also an important area. Without these provisions, there is nothing to stop the referrer disclosing confidential information which could be extremely damaging.

Non-competition clauses

As an extension of this, the agreement should also include non-competition clauses, as well as dealing with non-circumvention.

Other clauses that must be considered include duration of agreement, termination provisions, a jurisdiction clause (especially prevalent if the concerned parties are in different jurisdictions), and a clause detailing what happens in the event of a dispute.

Expert Legal Advice on introducer, affiliate or commission based contracts

 As is clear from the above, there are a number of commercial and legal considerations that should be taken into account when deciding whether or not to enter into a referral fee agreement. Once all concerned parties have decided that it is the best course of action, there is the need to ensure that the terms are drafted to meet the particular needs. 

Although there may be a number of templates available that appear to cover referral fee agreements, these will not take the specific needs of the clients into account, and there is therefore the risk that terms to not reflect the intention of the parties; something that will be problematic in the event of any dispute, and may well lead to further costs as the parties attempt to resolve this.

Get in touch with me if you would like to discuss a fixed fee quote for your specific requirements if you are considering entering into a commission based agreement or need a business contract generally.

commercial law • David Swede

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