Your Guide to Business Referral Agreements in Singapore

Last updated on March 27, 2020

What is a Business Referral Agreement?

A business referral agreement is an agreement for the provision of referral services by referrers (also known as an introducer) to business operators.

The business operator may be an individual, a company or a partnership engaged in the business of providing goods and/or services in any industry.

In this context, referral services would also typically refer to the introduction of prospective customers or clients to the business operator.

Function of Business Referral Agreements

The function of a business referral agreement is to set out the precise scope of the agreement between the referrer and the business operator. It will establish the rights and obligations of the referrer and the business operator in relation to their referrer-referee relationship.

For example, the agreement will include terms on the fees or commission which the referrer will receive in exchange for referring business to the business operator.

Essential Terms of a Business Referral Agreement

A business referral agreement will generally contain the following terms:

(1) Scope of the referral service

The scope of the referral service will be clearly defined through addressing issues such as:

The nature of the work or business transaction which the business operator undertakes;
The type or profile of the clients or customers to be referred to the business operator;
The referral methods to be undertaken; and
The duration in which the referrer will make referrals to the business operator.

While the above lays down the general parameters or considerations relating to referral services, the scope of the service will vary greatly from agreement to agreement, depending on the needs and budget of the business operator in question.

(2) Referral fees

Crucially, the business referral agreement will state the fees which the referrer will be entitled to when he renders his referral services, and also for every successful referral provided by him.

This may be set out in a detailed fee schedule setting out the following:

Method of calculating the referral fees. For example, whether as a percentage of the base value of the first transaction entered into as a result of a successful referral, or otherwise;
Period of time during which payment of referral fees are due;
Penalties (if any) for late payment of referral fees. For example, the charging of late payment interest;
Mode of payment of referral fees;
Any other conditions which need to be met in relation to the payment of referral fees. For example, whether the fees include Goods and Services Tax.

(3) Parties’ obligations

The obligations of each party towards each other are fundamental to the performance of the referral service. These obligations will therefore have to be clearly set out in the business referral agreement.

For example, the business operator may have certain obligations to provide the referrer with the necessary information on its business or even marketing materials. This is to enable the referrer to obtain suitable referrals for the business operator.

(4) Data protection

Parties in a business referral agreement have to ensure that they comply with Singapore’s data protection laws throughout the duration of the relationship.

For example, before the referrer refers an individual (e.g. a real estate agent or financial adviser) to the referee, the referrer will generally have to obtain the individual’s consent to share any of the individual’s personal data with the referee. The referee is also required to exercise “appropriate due diligence” to check that the referrer did actually obtain such consent.

These requirements do not apply where the party being referred is a non-individual (e.g. a business).

(5) Confidentiality

Confidentiality is of utmost importance in any business referral agreement to protect commercially-sensitive information disclosed to the referrer.

A business referral agreement will therefore include a clause defining what kind of information is to be regarded as confidential. It will also require the referrer to undertake to keep information obtained in the course of his work strictly confidential and used only for the purposes of making referrals.