Referral agreements: your top FAQs answered

1. What is a referral agreement?

A referral agreement (also known as an introducer agreement) is a contract between two parties where one party agrees to refer potential customers or clients to the other party in exchange for some form of compensation (usually a percentage of sale proceeds from those customers or a fixed fee per referral).

This type of agreement is common across various business sectors and is often used as a way for businesses to generate leads and expand their customer base. It can also be used as a tool to reach new markets, by drawing on the referrer’s industry expertise.

2. What should a referral agreement include?

The specific terms of a referral agreement will depend on the particular relationship between the referrer and the company it is referring business to. However, a typical referral agreement template will include, for example:

1. Referral arrangements - a referral agreement template will include the option to add details of the types of customers being referred and also any exclusions. Exclusions could include, for example, any leads who are already known to the company within a defined period of the referral being made. It is also typical to define the territory that the referrer can operate in (e.g. the whole of the UK or a specific region of the UK).

2. Compensation - this is key from the referrer’s perspective. It is crucial to specify the compensation structure for successful referrals, as well as what a successful referral looks like so it is clear where payment is triggered. The referral agreement template usually also specifies how long payment will be due for (e.g. based on a 12-month customer contract term or for the full life of a customer contract following a successful referral). Find out more about different compensation structures in the question below

3. Obligations - the referral agreement template will specify both parties' obligations. This could include, for example:

   Referrer:

   • complying with all reasonable instructions of the company;

   • keeping written records of its referral activities;

   • supplying the company’s product terms to prospective customers;

   • portraying the company in a favourable light in all communications;

   • referring enquiries from prospective customers to the company; and

   • not allowing its interests to conflict with those of the company.

   Company:

   • providing the referrer with information and reasonable assistance;

   • informing the introducer if it suspends or ceases to supply any of the services or products being promoted to prospective customers; and

   • providing the introducer with its product terms (and updates to those terms).

4. Intellectual property - the referrer will likely need to use the company’s intellectual property rights (IPR) to promote its brand and make referrals. A referral agreement template will therefore include provisions aimed at protecting the company’s IPR. This could include, for example:

   • a right for the company to review and approve or reject in advance each proposed use of the company's IPR;

   • a restriction on the referrer from taking any action that would conflict with or be contrary to the company’s rights and interest in its IPR; and

   • a requirement to obtain the company’s prior written approval of any marketing materials which have not been supplied by the company containing the company’s name and/or trade marks.

5. Confidentiality - a referral agreement template will option include a confidentiality clause to ensure that any confidential information shared between the parties remains a secret.

6. Duration and termination - the referral agreement template will specify how long the referral arrangement will last for, and also set out what each party’s rights are to bring the agreement to an end early.

7. Liability - a limitation of liability clause limits the amount a party has to pay to the other party if they suffer loss because of the referral agreement. In the absence of a limitation clause, there is no financial limit on the damages a party can ask for, and it is therefore common to include a limitation of liability clause in commercial agreements.

Docue’s referral agreement template includes the option to include all of the sections listed above, plus more. You can also easily add your own sections to the agreement. You can find out some top tips for drafting your referral agreement here.

3. How do I structure compensation in a referral agreement?

There are a number of ways that the referrer may be paid when they make a successful referral (i.e. a referral that results in the company entering into a contract with the referrer customer), but common payment structures include:

1. Percentage of net sale proceeds - the referrer may receive a defined percentage of the net sale proceeds received by the company under the contract with the referred customer. This could be the net sales proceeds received over a defined period (e.g. 12 months), or for the full life of the customer contract.

2. Fixed fee per customer contract - alternatively, the referrer may receive a fixed fee for every successful referral made.

3. Retainer fee - sometimes a referrer may not be paid based on the number of referrals made, but rather receive a monthly retainer fee for making continuous introductions. In this case, it would be important to define other parameters in the referral agreement to ensure that the referrer remains properly incentivised.

Docue’s referral agreement template includes the flexibility to select any of the options listed above, or to include your own payment structure if different.

4. What is the difference between exclusive, sole and non-exclusive appointments?

Referral agreement templates usually include a clause which specifies the basis on which the referrer is being appointed. The types of appointment are:

1. Exclusive - this means that the company cannot appoint any third parties to carry out the activities of the referrer under the referral agreement, and only the introducer is authorised to carry out those activities for the company. The company also cannot carry out the activities itself, as the referrer has the exclusive right to do so.

2. Sole - this means that the company cannot appoint any third parties to carry out the activities of the referrer under the referral agreement, but the company can carry out such activities itself.

3. Non-exclusive - this means that the company will be free to appoint third parties to make introductions, and the company can also carry out the activities of the referer under the referral agreement itself.

Docue’s referral agreement template includes the option to include each of the appointment types listed above. All you need to do is select the option that suits your situation, and the terms of the referral agreement template will automatically update to reflect your chosen scenario.

5. How can Docue help? Use our referral agreement template.

Docue’s referral agreement template has been drafted, and is maintained by, business lawyers. All you need to do is answer a series of questions, and your referral agreement will be created in real time based on your answers. And don’t worry if you get stuck along the way, as our lawyer-drafter guidance notes are there to help you through the contract creation process.

After you have created your referral agreement, you can use Docue’s e-signature function to send it for signing. Once signed, you can securely store your referral agreement, together with your other important documents, in Docue’s secure storage archive, Docue Drive.

Sign up now to use Docue's referral agreement template.