Handling Referrer Arrangements
Many business people rely on referrals to grow their customer base or supplement their income. Putting a written framework in place ensures your arrangement proceeds smoothly.
We've all had those conversations that start with "Do you know anyone who... ?"
Whether you're looking for someone to mind the cat while you go on holidays, or a reliable and trustworthy mechanic or someone to renovate the bathroom, you usually ask friends or family first.
If you're on the receiving end of the question - you think carefully about making a recommendation because your reputation rides on the performance of the people you suggest.
Business people use referrals too
Many business professionals rely on referrals to provide either
- a steady stream of new opportunities (for the referee), or
- a source of income as commission (for the referrer).
As a referrer the stakes are high - your professional reputation rests on the performance of the person you recommend. If you have spent time and energy building the trust and loyalty of your customers or clients, the last thing you want is to have your own good name tarnished by a poor referral. It's just not worth it.
Aside from doing the due diligence of properly researching the person you wish to refer, you can take steps to document your referral arrangement so that it includes a framework of behaviour or standards.
As an added bonus, putting your agreement in writing drastically reduces the potential for misunderstandings or arguments down the track which can happen very easily when you rely on verbal agreements and selective memories!
These are the key issues to consider and agree upon before you begin:
- How will the referral fee be calculated? Will it be a set fee per client referred? Or will it be a percentage of the fees billed to the client? There are many ways that a referral fee can be worked;
- The logistics of accounting to and remunerating the referring party. How and when will the referral fees be calculated and paid;
- Setting and maintaining quality performance standards to ensure that your clients are receiving a high quality service.
- Putting certain boundaries and restraints in place. For example, you may wish to specify that the service provider does not perform any of the services that you provide in respect of your referred clients.
- Ensuring compliance with applicable laws which may apply, such as the National Credit Act and ASIC’s regulatory guides;
- Ensuring confidential information and intellectual property are protected;
- Exit clause (termination of the Agreement) – Things don’t always go to plan, and you need to establish up-front how the Agreement be ended if things don’t work out as you hoped for.
Don't leave it to chance - Cement the terms of your referral arrangement
Our professionally drafted Referral Agreement can be used as a foundation to set out the agreed rights and responsibilities of each of the parties.
By Ian MacLeod