Finder's Agreement and Referral Agreement

Finder’s Fee Agreement and Referral Fee Agreement

Finder’s Fee agreement and Referral Fee agreement are both business introduction agreements which that outlines how a finder/referrer that introduces business/investor to another party will be compensated as a middleman. The terms “Finder’s Fee” and “Referral Fee”, are often considered to be interchangeable and synonymous. However, there are a few subtle differences below that we would like to draw your attention to so that you do not incur unexpected fees in your business plan.

A. What is a Finder Fee?

Finder's fee is a reward to a business contact who introduce new potential customers, investors or bring sales to the company or a business owner. The finder discovers the transaction and introduces it to other interested parties, and the finder is paid a finder’s fee for his / her effort. The assumption is that without a finder or any agent referrals, the two parties will never conclude a transaction and the finder is therefore entitled to compensation.

For example, if a finder arranges a meeting between the buyer and seller, he/she may receive a fee as the middleman for arranging the commercial transaction. Finder’s fee is normally paid in relation to the introduction of investors or capital to businesses through referrals.

Although frequently no contract is signed for a finder’s arrangement, agreeing on the finder's fee terms will allow the parties to agree on the scope of compensation. This is especially useful for providing incentives to finders who can continue to attract business or investors to the company. Finder's fee terms can vary widely, usually between 3% to 30% of the total transaction value, depending on the amount of work and effort the finder puts into the transaction. In some cases, the "fee" is just an informal gift. Finder’s fees can be paid by the buyer or seller of the transaction.

B. What is a Referral Fee?

The referral fee is the commission paid to the intermediary or referrer for promoting a transaction. A referral fee agreement is used when people have knowledge and contacts in a certain field and want to be paid for making successful introductions to others. Most often, the intermediary is a professional broker, as opposed to a finder, who is more likely to make the introduction as a side business.

For example, it is common for a professional broker to introduce a buyer and seller of goods or services, a real estate buyer and seller, or an employer and potential employee. The referral fee agreement will specify which party pays for brokerage services for the introduction and the conditions in exchange for client referrals. Businesses may use this referral fee agreement if they want to pay a Broker to bring in new clients or business deals, or to find certain goods or services to users they can't find on their own.

A referral fee agreement should not be confused with the finder's fee agreement, which is a contract between the business owners to contract with the finder (usually not a professional broker) to find potential clients and investors for their business for a fee. In fact, it is more similar to a commission agreement than a finder’s fee agreement. The first party has the goods or services they want to sell. The second party (usually a broker or an expert with knowledge and contacts in a certain field) will promote and sell goods or services, and connect the second party to new customers. The first party promises to pay the second party a certain amount of money, which is the commission payments for each transaction. The agreement should list the percentage or amount of commission as the commission for each transaction and when the fee/commission will be paid.