Your accountant emails you a draft referral service agreement and asks for a signature before the end of the week. Or you have spent two years building a relationship with a business that sends clients your way, and you have finally agreed to formalise the arrangement in writing. Either way, you are now looking at a document that will decide how much you get paid, which clients count, and who carries the blame when a referred client is unhappy.
A referral service agreement is the contract between two businesses where one introduces clients to the other, usually in exchange for a fee. It does not bind the clients themselves; it binds the two businesses to each other. It turns a handshake arrangement into defined terms: which services are referred, what gets paid, how each party must behave, and who wears the loss if something goes wrong. This guide walks through the clauses that matter most, what each one should say, and the drafting choices that cause problems later.
The clauses that carry the agreement
Which services are being referred
Every referral agreement starts with the scope: exactly which products or services each party will refer to the other. A good referral relationship is not a competitive one. Each business sends work the other is better placed to do, and both benefit. But businesses often trade overlapping product lines, and if the agreement does not say whose referral territory is whose, the first disagreement is only a matter of time.
- What to list: name the specific services or products each party refers, in plain words, so there is no argument later about whether a particular job was inside the arrangement.
- The trap: two businesses that sell competing versions of the same service will eventually fight over a client who came in through the referral channel. The scope clause is where that fight is decided.
- The carve-out: make clear that neither party gives up the right to sell its own products or services to its own clients outside the referral relationship.
How the referral fee is earned and paid
The fee clause is where most referral disputes are born, because it decides what counts as a referred client and when the fee is earned. A clause that says "a referral fee of 10 per cent applies" leaves every real question unanswered. Ten per cent of what? Paid when? And what happens if the client does not sign up for six months?
- Variants: some agreements pay an upfront fee when the client first engages the referral partner, while others pay a trailing fee over the life of the client relationship. Mixed arrangements are common, with an initial payment plus a smaller ongoing amount.
- The trap: a fee tied to the client rather than the engagement. If the referred client comes back to the referral partner a year later for a different service, is that a new referral or part of the original one? The agreement should say.
- Drafting minimums: state whether the fee is inclusive or exclusive of GST, who invoices whom, when payment is due, and what records each party must keep to verify the fee.
What each party promises about the law
You cannot audit your referral partner's business, but you can require them to promise, in writing, that they run it lawfully and keep the licences their industry needs. This warranty clause protects your reputation and gives you a right to act if a partner is exposed. It matters most in industries where referrals cross a licensing line.
- Credit: if your business suggests that a client apply for credit with a particular lender, or helps them do it, you may be providing "credit assistance" under s 8 of the National Consumer Credit Protection Act 2009 (Cth), which is a regulated credit activity requiring an Australian credit licence. A referral fee arrangement cannot be used to sidestep that requirement.
- Financial services: where referred work involves financial product advice to retail clients, fees that could reasonably be expected to influence which product the adviser recommends are "conflicted remuneration" and are banned under Part 7.7A of the Corporations Act 2001 (Cth) (see ss 963A and 963K). Referral commissions in that space need careful checking before they are agreed.
- Ongoing obligations: each party should warrant that it holds the licences, registrations, and insurance its business requires, and that it will tell the other party promptly if anything changes.
Insurance and who bears the losses
Most referral partners should carry professional indemnity insurance, because the referred client's claim usually lands on whoever did the work. In some industries the cover is compulsory: licensed conveyancers in NSW, for example, must hold professional indemnity insurance approved by the Commissioner for Fair Trading. The agreement should make the cover a condition of the relationship, not a hope.
- Insurance minimums: require each party to maintain current professional indemnity cover appropriate to the services it provides, and to produce proof of cover on request.
- The one-sided trap: an indemnity is a promise to cover the other party's losses, and the first draft is often one-sided in favour of whoever prepared it. A clause that only protects the referral partner who sends clients your way is a clause you should push back on.
- Carve-outs and caps: indemnities usually cover losses caused by the indemnifying party's breach of the agreement or the law. Consider whether the indemnity should be capped, and carve out losses caused by the other party's own negligence so you are not insuring their mistakes.
Client information: confidentiality and privacy
Referral relationships run on information. You hand over client names, contact details, and often a summary of why they need the referral partner's services. That transfer is exactly what the Privacy Act 1988 (Cth) regulates. Australian Privacy Principle 6 says that if you collected personal information for one purpose, you must not use or disclose it for a different purpose unless the individual consents or an exception applies. Handing a client's details to your referral partner is a secondary use, so the agreement needs to build in the consent step.
- The consent mechanism: the agreement should record that client information will only be passed across with the client's consent, and should set out who obtains it and how it is documented.
- Limits on use: the referral partner should be restricted to using the information for the referred service only, not for building its own marketing lists or selling the details on.
- Return or destroy: on termination, each party should return or destroy the other's confidential information and client data, and confirm that in writing.
How the arrangement ends
Referral relationships sour, businesses change direction, and partners let their standards slip. A termination clause makes the exit predictable instead of painful.
- For cause: either party should be able to terminate immediately if the other breaches the agreement, loses a required licence, or behaves in a way that damages the relationship.
- For convenience: notice periods of 30 to 90 days let both sides wind down referrals without stranding clients who are mid-engagement.
- What survives: confidentiality, privacy obligations, and indemnities should survive termination, and fees already earned on completed referrals should still be payable.
Who keeps the referred clients when the deal ends
The clause that referral agreements most often forget is what happens to clients who are already in the pipeline when the agreement ends. A client referred last week is still being served by your partner this month, and someone needs to say who pays whom for that work, and whether your partner can keep soliciting those clients.
- Run-off work: clients already engaged at termination should generally be allowed to finish, with the referral fee paid on the work done.
- Non-solicitation: a short window after termination during which neither party actively solicits the clients the other introduced can protect the value of the client list you built.
- The carve-out: make sure the clause does not stop either party serving clients who came to them independently, before the referral relationship started.
How disputes are sorted out
Finally, the agreement should say where and how disagreements are resolved. Governing law and jurisdiction clauses pick the state whose courts will hear a dispute, which matters when the parties are in different states. A short dispute resolution step, such as a meeting between senior people or mediation before court proceedings, can preserve a relationship that is worth saving and is far cheaper than litigation for disputes that are not.
Clauses worth adding when they fit
The clauses above cover the core of any referral agreement. Beyond them, a few additions earn their place when the relationship is long term or the referral partner will learn how your business runs, and they are worth raising while the agreement is still being drafted:
- Exclusivity: worth including when one partner is committing to make your business its preferred supplier, and wants protection for building the pipeline. It should say what happens to referrals made outside the exclusive arrangement.
- Non-solicitation of staff: consider it when the referral partner's team will learn your client base and how you operate, so a departing employee does not walk your clients across to the partner.
- Change of control and assignment: include it if the partner might be acquired, so your referrals do not end up in the hands of a competitor without your say-so.
- Liability caps: consider capping each party's liability under the agreement at a multiple of the fees paid, so an uncapped indemnity does not dwarf the value of the arrangement.
- Dispute resolution steps: add an escalation clause for long-term relationships where a blow-up should not automatically mean a lawsuit.
How an Artificer Legal practitioner would review your referral agreement
When Artificer Legal reviews a referral service agreement, the order of attack matters. We start with the fee trigger, because that is where the money is and where ambiguity is most expensive. Then scope, so we know which work is inside the arrangement. Then the compliance warranties, because in credit and financial services a referral fee can be a licensing problem in disguise. Indemnities and insurance come next, and we will push back on any clause that is one-sided or that would make your business the insurer of your partner's mistakes. Privacy comes last but never gets skipped: the consent mechanism for passing client information needs to work in practice, not just on paper.
We also check the industry context before the wording. A referral agreement for mortgage brokers needs to be checked against the credit assistance rules in s 8 of the National Consumer Credit Protection Act 2009 (Cth), and one for financial advisers needs to be checked against the conflicted remuneration provisions in Part 7.7A of the Corporations Act 2001 (Cth). The same template will not survive both industries, and a lawyer who knows the sector will spot the difference before you sign.
The fee trigger
Of every clause in a referral service agreement, the definition of what counts as a referred client and when the fee is earned is the one most likely to decide a dispute. It is also the one most often misdrafted, because it is written as a percentage without the questions that give the percentage meaning: which client, which service, which period, and what happens when the client returns later. Two businesses can honestly disagree about each of those, and a court case is an expensive way to find out which reading the agreement supports.
Everything else in this article supports that one clause. Scope tells you which services are referred, so you know what the fee applies to. Compliance and indemnity clauses tell you who carries the risk when a referred client is unhappy, so the fee is not paying for someone else's liability. Confidentiality and privacy clauses make sure the client information you pass across is handled lawfully, and termination and non-solicitation clauses protect the value of the relationship after it ends. Get the fee trigger right and the rest of the agreement has a solid spine. Get it wrong and every other clause is negotiating around a hole.