An Overview on Commission Agreements

A Commission Agreement, also known as Introduction or Finder’s Fee Agreement, is  an agreement where one party (a Supplier of goods and/or services) wishes to engage another (the Introducer) to introduce potential clients for the services and/or goods in return for a Commission. In other words, the Introducer is appointed to introduce potential clients to the Supplier in order to generate more sales and increase the customer base and the Introducer will earn a Commission in return for its efforts.

Commission Agreements are essentially a type of agency agreement, under which the agent acts as a representative of its principal but has no authority to enter into contractual arrangements on its behalf. Essentially an Introducer differs from an agent as he does not directly sell the products and/or services of the Supplier but it merely introduces potential clients to the Supplier. Once the introduction is made the Introducer will steps back, it will have no further role in the relationship between the Supplier and the introduced client; the selling and supplying of the services and/or products will be carried out directly by the Supplier.

Broadly, a Commission Agreement is where one party appoints another party to find third parties who may want to purchase goods and/or services from the first party. Commission is payable to the Introducer if the third party purchases such goods and/or services.

 A Commission Agreement is necessary in order to regulate the relationship between the parties and to set out the rights and obligations of both parties.

Under a Commission Agreement the Introducer‘s main obligation is to make introductions to the Supplier, however making an introduction does not trigger commission; commission is only payable if, following an introduction, a prospective new client enters into a contract with the Supplier for the goods and/or services. This protects the Supplier as no commission is payable unless the Supplier and the introduced new client enter into a contract.

Generally in a Commission Agreement the commission fee is calculated on the basis of net income received under a contract between the Supplier and the introduced new client for a certain period (Introduction Period). Please note that the obligation to pay commission is not affected by termination of the Commission Agreement. In other words, Commission is payable after termination in respect of contracts entered into as a result of introductions made before the termination date. This arrangement protects the Introducer against the Supplier terminating the agreement in order to escape payment of commission after a particularly lucrative new client is introduced.

Another clause that is generally found in these kind of agreements provides that commission is only payable on income actually received from any contract entered into by the supplier with a prospective new client during the introduction period. This is a supplier-favourable mechanism and protects the supplier against having to pay commission on sums never received, perhaps as a result of breach by the client or early termination.

For more information on Commission Agreements and to view a Commission Agreement Template please visit: http://www.thelegalstop.co.uk/Business/Commission-Agreement.html

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