Business referral agreements for startups: best practices

The business referral agreement is a key tool for using your network for indirect sales, if you are active on the startup scene. It allows the provider to monetize his network by presenting prospects to another company (the beneficiary). Here is how to properly draft your business referral agreementin order to avoid misunderstandings and legally secure this collaboration.

Why is a business referral agreement useful?

A business referral agreement allows the provider to receive a commission if the prospect signs an agreementwith the beneficiary company. Without such an agreement, the risk of dispute is important, especially concerning commissions.

For a startup, formalizing this collaboration makes it possible to:

• Secure relationships with the provider.
• Clearly specify the conditions for eligibility for the commission.
• Specify the reporting procedures.

The key elements of a business referral agreement

1. Precise identification of prospects

The agreement should specify how to clearly identify the prospects brought in:

• Provision of detailed contact details of the prospect.
• Definition of conditions for validating a prospect (for example, a confirmed sales appointment).
• Deadlines for eligibility of the prospect for a commission (example: six months after the initial introduction).
• It may be interesting to foresee the case where a lead is brought in by several providers (commission sharing? priority to the first?)

A simple and clear procedure avoids any debate about the origin of the prospect and the legitimacy of the commission.

2. Precise scope of the commission

The remuneration must be fully defined in the agreement:

• The precise rate (generally a percentage of the turnover actually collected).
• The products or services concerned.
• Special conditions (for example, commission only for the first year of subscription).

3. Reporting and transparency

A clear reporting mechanism on signed deals is essential:

• Frequency of follow-up reports (monthly, quarterly, annual).
• Information to be provided (date of signature, amount invoiced, date of receipt).

Otherwise, the beneficiary may not provide the information in order to avoid paying commissions. This process allows to work in good intelligence.

4. How to pay the commission

The payment procedure should be clear and precise:

• Payment deadlines after receipt by the beneficiary, and periodicity (for example by grouping commissions each quarter).
• Payment method (bank transfer, invoice to be drawn up by the provider).
• Conditions in case of late payment (late payment interest, specific allowances).

5. Clear distribution of roles and responsibilities

The agreement should detail the specific roles of each party:

• The contributor should not be able to conclude agreement on behalf of the beneficiary.
• The beneficiary maintains control over pricing, any discounts, and the final acceptance of prospects.
• The provider must respect the professional and commercial standards set by the beneficiary.

Useful additional clauses in a business referral agreement

Confidentiality clause

It protects sensitive information exchanged between the parties. In general, exchanges between the business provider and the beneficiary are confidential.

Intellectual property clause

It mainly regulates the conditions of use of the brands and logos of the beneficiary company by the business provider, as well as the management of marketing materials.

Anticipate the end of the business provider contract

Setting out the terms of termination helps to avoid disputes:

• Notice must be respected for termination.
• Specific conditions in the event of a serious breach.
• Clauses providing for the terms of payment of commissions remaining due after cancellation. It is the main source of disputes.

Conclusion: the business referral agreement contract is very useful for development

Investing in a solid business referral agreement is an essential step for any startup wishing to rely effectively on a indirect sales. It is a very useful method for developing customers indirectly. The providers are your sales representatives and only paid for the result. It just has to be well governed by the agreement.

If you are a business provider or a beneficiary startup and you want to legally secure your commercial relationships, I can help you draft a balanced business referral agreement adapted to your business.

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