What to Know When Using Referral Fee Agreement Templates With Clients

From real estate to law and even hospitality, referral marketing is a big deal in a variety of industries. This approach builds trust among clients, who like knowing that the businesses they frequent have already been vetted by their close contacts. Businesses, in turn, benefit from an improved flow of qualified clients.

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PDF Template - referral fee agreement template

The business or professional making the referral can also benefit from this exchange — particularly when referral fees are involved. That being said, there is a significant degree of risk built into these arrangements. Protection is available in the form of a referral fee agreement, which outlines when the referring party is eligible for compensation. Often, however, those who stand to benefit from these documents fail to make use of them — or they simply don't know what to include.

To help, we've developed a basic guide that explains what, exactly, referral fee agreements should include. We'll also detail common mistakes and how they can be avoided.

What Every Referral Fee Agreement Should Include

A referral fee agreement can be a fairly straightforward document, but it should be detailed to avoid any potential for confusion. At minimum, every referral fee agreement should include the following key elements :

  • An explanation of how referrals will take place. How should the referring party alert the other professional or business to new client opportunities? How long does the party receiving the referral have to respond? All this should be detailed in a clause that takes the reader through each step of the process. Don't forget to provide the form that should accompany each referral. This can be offered alongside the agreement as an exhibit. 
  • Details on referral compensation. Should the referral recipient agree to work with the recommended client, this section should explain how the party responsible for the referral should be compensated. Known as the referral fee, this payment may be identified as a flat fee or as a percentage of the profit from said client.
  • Information on when a referral fee is not required. In addition to highlighting the referral fee and the circumstances in which it's required, the document should explain what might happen if the business that receives the referral does not move forward with the client. This section should also note that the referral fee is the only form of compensation the referrer should expect. 
  • Dates indicating the term of the agreement. This clause should verify when the agreement takes effect and whether it can be expected to renew at a particular time. Additionally, this section should explain when and how the agreement might be terminated.
  • Confidentiality information. When making arrangements for referrals, businesses or professionals may receive access to proprietary information. If such intellectual property is of considerable value, it behooves those entering into referral fee agreements to verify that they will abstain from disclosing confidential information. This clause should also explain how confidential details or materials will be handled if the agreement is eventually terminated. 

Best Practices for Using a Referral Fee Agreement Template

Missteps that initially seem minor can hold huge implications for those who make and receive referrals. As such, it's important to abide by these best practices:

  • Customize the template based on local laws or professional ethics. Referral arrangements that are perfectly acceptable in some locations or industries may be problematic or even illegal in others. Be sure to make customizations as needed based on location or industry-based caveats.
  • Explain independent contractor status. All those who sign referral fee agreements should understand that their relationship in no way resembles that of an employee and employer. 

Secure Signing for Referral Fee Agreements

Once you've done the hard work of customizing your referral fee agreement template, it's time to get the document signed. With the right resources, this can be the most straightforward part of completing this agreement. Document security is essential, however, so it's important to use a solution such as Nitro Sign. Get started today with a free trial.

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