Referral Agreement

Referral Agreement: putting in a good word, properly

Business-to-business referrals create new ventures and expand customer networks. Getting the terms clear before commission is at stake protects both the party making introductions and the party receiving them.

A referral agreement is short by the standards of commercial contracts. What it needs to nail down is who does what, what happens when a lead turns into a deal, and when the money arrives.

The two parties

The Partner: the referrer. An independent contractor appointed to source new leads and potential clients, paid by commission.
The Company: the party looking for new clients, paying commission to get them.

Who needs one

ISVs, SaaS providers and MSPs paying introducers for warm leads
Consultants and advisers who regularly send business to complementary suppliers
Complementary vendors who refer into each other's pipelines
Anyone currently operating a handshake commission arrangement

The clauses that matter most

1. The Partner's role and obligations

The appointment is non-exclusive: the Partner can provide the same service to other companies. In return for commission, they serve the Company diligently and faithfully, and use commercially reasonable endeavours to introduce prospective clients.

That standard is deliberate. A stricter obligation would force the Partner to commit more time and resources to prospecting than a commission-only arrangement can justify, which makes it unrealistic and, in practice, unenforceable in spirit.

Clear limits go with it: the Partner does not represent the Company. They cannot commit the Company to any deal, make representations or warranties, or alter Company material. They cannot use Company logos and branding in their own marketing without express permission.

Those limits are not decorative. They keep the arrangement a referral rather than an agency, and in the UK that distinction has real money attached to it.

Jurisdiction note: referrer or agent?

UK: Under the Commercial Agents (Council Directive) Regulations 1993, a self-employed intermediary with continuing authority to negotiate the sale of goods on another's behalf is a "commercial agent", and gains a statutory right to compensation or an indemnity when the agreement ends, which cannot be excluded by contract. The regulations do not cover pure services, and a genuine introducer who merely makes introductions and has no authority to negotiate falls outside them. Keeping the Partner's role limited to introductions is what keeps you outside the regime.

US: No federal equivalent, but many states have sales representative commission statutes that require commission terms to be in writing and impose penalties, sometimes double or treble damages plus legal fees, for late payment of earned commissions after termination.

Canada: No direct equivalent to the UK regulations, but a long-standing referral partner who is economically dependent on one company may be found to be a dependent contractor, entitled to reasonable notice of termination at common law.

2. The Company's obligations

The Company acts in good faith and provides the Partner with the information reasonably necessary to find clients, including details of the services, so the Partner can actually sell the story.

3. Deal registration

Annex A of the agreement provides a deal registration form, completed case by case and issued to the Company whenever a new prospective client is found. It is the mechanism that stops arguments about who introduced whom.

4. The process for new clients

The Partner finds a potential client.
The Partner submits a deal registration form.
The Company promptly responds as to whether it accepts the new client.
The Company contacts the potential client.
If the Company and the client enter a relevant contract because of the introduction, the Partner is paid commission.

Note step three: the Company is under no obligation to accept a prospect the Partner submits.

5. Payment terms

Once a relevant agreement is signed with the prospective client, the Company promptly informs the Partner, and the Partner invoices.

Commission is payable within 28 days of receipt of the invoice. Where the client contract provides for payment in instalments, commission is paid in line with those instalments, so the Company is not funding commission ahead of its own cash.

Sums are exclusive of sales tax (VAT in the UK, state and local sales tax in the US, GST/HST or QST in Canada), which is added to the invoice. Commission disputes are decided by the Company's auditors, whose decision is final.

Late payment accrues interest at a stated rate above a named reference rate.

Jurisdiction note: how to express the interest rate

UK: A common contractual rate is 4% above a named bank's base rate. Where the contract is silent, the Late Payment of Commercial Debts (Interest) Act 1998 implies a statutory rate of 8% above the Bank of England base rate, so a contractual rate materially below that may be challenged as an inadequate remedy.

Canada: Watch section 4 of the Interest Act. If you express interest for any period shorter than a year, "2% per month" for example, without also stating the equivalent annual rate, the enforceable rate drops to 5% per annum. Always state the yearly equivalent. Separately, the criminal rate of interest under the Criminal Code was reduced in January 2025 to 35% APR, so keep commercial rates well clear of it.

US: There is no general federal prompt payment rule for private B2B contracts; the federal Prompt Payment Act applies only to federal agencies paying their contractors. Interest is a matter of contract and state law, and state usury caps apply. Where the referrer is an individual rather than a company, those caps are usually lower.

6. Term and auto-renewal

You choose the length of the initial term, and the agreement continues on a rolling basis for the same period. Choose 90 days, and it renews every 90 days.

The most common structure is a one-year initial term with 90 days' notice. A year gives both sides time to find their feet; 90 days gives everyone time to prepare for the end.

7. Termination

Cancelling the auto-renewal within the notice period is one route out. Others: if a breach, including a payment breach, is not remedied within 14 days, the other party can terminate immediately. So can either party if the other ceases its business.

Neither party can terminate for convenience, which stops one side walking away and leaving the other financially exposed.

8. Liability

Neither party is responsible for the other's loss of profit, revenue, goodwill or anticipated savings. Death or personal injury caused by negligence, fraud and other liabilities cannot be limited by law. Where liability can be capped, both parties are capped at the total commission paid over the previous year.

9. Governing law and jurisdiction

Jurisdiction note

UK: English law with exclusive jurisdiction of the English courts, non-exclusive negotiable. Note that the Commercial Agents Regulations can apply regardless of a choice of foreign law where the agent operates in Great Britain.

US: A named state's law and venue. Check whether the referrer's home state has a sales representative commission statute that applies regardless of the choice of law. Several do.

Canada: Name the province.

Frequently asked questions

What commission rate is standard? There is no standard: it depends on your margin, the deal size and how much work the referrer does. What matters is that the rate, the trigger and the timing are written down.

When does commission become payable? When the Company and the introduced client sign a relevant contract because of the introduction. Payment follows within 28 days of the Partner's invoice, or in line with instalments where the client pays in stages.

Can the Company refuse a referral? Yes. There is no obligation to accept a prospect submitted on a deal registration form.

What is the difference between a referral agreement and a reseller agreement? A referrer introduces and steps back. A reseller buys and sells your product, owning the customer relationship.

Could my referral partner claim compensation when I end the agreement? In the UK, yes, if they qualify as a commercial agent under the 1993 Regulations, which turns on whether they had continuing authority to negotiate the sale of goods. Keeping the role to introductions only is what avoids it. In the US, several states protect earned commissions after termination with penalty provisions; in Canada, a long-standing economically dependent partner may be owed reasonable notice.

How should I write the late payment interest clause for Canada? Always state the equivalent annual rate. Under s.4 of the Interest Act, interest expressed for a period shorter than a year without the yearly equivalent is capped at 5% per annum.

How Cloud Contracts 365 helps

Cloud Contracts 365 builds a referral agreement in minutes and stores every one you have signed, with the deal registration form attached and renewal dates tracked. When a referral partner asks what they are owed and when, the answer is in one place instead of an old email thread.