A referral agreement is a contract under which one party introduces potential customers to another in exchange for a referral fee or commission. It is one of the most common (and most informal) business arrangements, which is exactly why putting it in writing matters. Here is a plain-English guide for England and Wales.
What a referral agreement does
A referral agreement sets out the terms on which a referrer introduces leads (potential customers) to a business, and how the referrer is paid when those leads turn into sales. It typically covers:
- what counts as a qualifying referral;
- the referral fee and when it is earned and paid;
- the parties' roles and limits (e.g. the referrer has no authority to bind the business);
- confidentiality and data protection; and
- term and termination.
Qualified vs unqualified leads, get this clear
A frequent source of disputes is which referrals actually earn a fee. Define it precisely:
- an unqualified lead is a bare introduction; and
- a qualified lead is one that meets agreed criteria (e.g. the customer is genuinely interested, fits a profile, or actually buys within a set period).
State whether the fee is earned on introduction, on a completed sale, and within what time window, and whether the customer must be new (not already in the pipeline).
The referral fee and exclusivity
- Fee: a fixed sum or a percentage of the sale, and when it is paid (often after the business is paid by the customer).
- Exclusivity: is the arrangement exclusive (the business uses only this referrer / the referrer refers only to this business) or non-exclusive? Most are non-exclusive, say so.
Data protection, don't overlook it
Referrals involve sharing personal data about individuals, so both parties must comply with the UK GDPR / Data Protection Act 2018, there must be a lawful basis for sharing contact details, and individuals should be treated transparently. Marketing to referred individuals also engages the PECR rules on consent.
Payment terms and late payment
Set clear payment terms for the fee. As a business-to-business arrangement, overdue fees can attract statutory interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998.
Watch for regulated sectors
If either party is in a regulated sector (financial services, insurance, legal services, healthcare) paying or receiving referral fees may be restricted or require disclosure under the relevant rules (for example, referral fees are banned in some personal-injury contexts). Check the rules before agreeing a fee.
When does your business need one?
You need a referral agreement when:
- you pay or receive referral fees and want certainty on what earns a fee and how much;
- you are sharing customer data;
- the relationship is ongoing or commercially significant; or
- you want to protect confidential information and limit the referrer's authority.
A quick handshake deal is a recipe for arguments about who introduced whom and what is owed.
Key takeaways
- A referral agreement governs introductions in exchange for a fee, define qualifying referrals precisely (qualified vs unqualified; introduction vs completed sale; time window).
- Cover the fee, exclusivity, the referrer's lack of authority, confidentiality, data protection and termination.
- Comply with the UK GDPR/PECR when sharing and marketing to referred individuals.
- Check regulated-sector rules on referral fees, and use clear payment terms (with Late Payment Act rights for B2B).
Sources
- General contract law (terms of the referral and fee); Late Payment of Commercial Debts (Interest) Act 1998
- UK GDPR / Data Protection Act 2018 and PECR (sharing personal data and marketing)
- Sector-specific rules restricting or requiring disclosure of referral fees (e.g. financial services, personal injury)
--- This article is general information about the law of England & Wales as at 2026, not legal advice. For advice on your circumstances, consult a qualified solicitor.