Any referral agreement is known as a formal agreement between two businesses in which one party pays the other for referring consumers or clients. As good referrals may be a lucrative and consistent source of revenue, many firms enter into referral agreements.
You should have an agreement that protects your interests if you want to enter into a certain referral relationship with another company. Otherwise, you risk hurting the reputation of your company through bad referrals or dissatisfied consumers.
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The following are a few things that must always be included in a referral agreement document.
- Nature of the Agreement
Your referral agreements should spell out the specifics of your relationship with the other company. Who will serve as a referee? How are you and the other company going to compensate each party to the other for the referral?
- Whether the referrals is qualified or unqualified
A name or phone number might be used as an unqualified referral. The referrer has investigated and corresponded with a qualified referral. This must be mentioned if qualified referrals are required.
Unqualified referrals can be made using a phone number or name. A qualifying referral has been examined and corresponded with by the referrer. In case qualified referrals are necessary, this must be indicated.
- How the referrer will get the payment
You can earn commission-based referral fees. Party A, for example, could be paid a commission based on a percentage of the fees that Party B gets from consumers over the next 12 months.
To avoid payment conflict, specify when the fees will be due and payable, and also the payment method.
- The duration of your agreement
Whether the contract has a set expiration date or will continue until one of the parties terminates it for any reason indicated in the contract.
- Whether any earn-out period is there
This is the time frame in which the sale must occur after the recommendation has been made for the referrer for earning their commission. The referrer will not receive a commission if the sale occurs after the earn-out time has expired.
- Whether any pay-out period is available
If the referred client becomes a devoted repeat customer, a payout term prevents the business from paying the referrer indefinitely.
- Intellectual property
A clause allowing you or any other business to offer the other a licence for using any relevant intellectual property should be included. A licence permits you to make successful recommendations by utilising the marketing resources of any other company.
The provision should also specify how each party may not reveal or exploit the intellectual property of the other.
- Clause for confidentiality and privacy
This clarifies the agreement is according to the law, how personal information is handled. Referral businesses should warn their customers that their information may be shared with third parties so that customers are not dissatisfied because their information was sent to another company without their permission.