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Referral Agreement Definition: Understanding the Basics

A referral agreement is a legally binding contract between two parties – the one who refers business to another, and the one who receives the referral. In a referral agreement, the terms and conditions are outlined for the referral process, including compensation, exclusivity, confidentiality, and termination.


The compensation clause of the referral agreement defines how the referrer will be compensated for the business they refer to the other party. It can be a percentage of the sale, a flat fee, or any other agreed-upon compensation method. The agreement should also outline when and how the payment will be made.


The exclusivity clause of the referral agreement outlines whether the referrer has the exclusive right to refer business to the other party or whether they can refer business to other companies as well. If exclusivity is granted, the agreement should also specify the period for which the exclusivity will be granted.


The confidentiality clause of the referral agreement outlines the privacy and confidentiality obligations of both parties. It details what information is confidential and how the parties should handle confidential information.


The termination clause of the referral agreement outlines when and how the agreement can be terminated. It should specify the grounds for termination and the notice period required to terminate the agreement.

In conclusion, a referral agreement is a crucial document that outlines the terms and conditions of the referral process between two parties. It ensures that both parties are clear about their obligations and expectations, and helps prevent misunderstandings or conflicts down the line.

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