What Is a Finder’s Fee?
A finder’s fee (also known as “referral income” or “referral fee”) is a commission paid to an intermediary or the facilitator of a transaction. The finder’s fee is rewarded because the intermediary discovered the deal and brought it to the attention of interested parties. The presumption is that without the intermediary, the parties never would have found the deal, and the facilitator thus warrants compensation.
- A finder’s fee or referral fee is a commission paid to the person or entity that facilitated a deal by linking up a potential customer with an opportunity.
- A finder’s fee is a reward and an incentive to motivate the facilitator of the transaction to keep providing referrals to the buyer or seller in the deal.
- The terms of a finder’s fee can vary from deal to deal, with a payout usually representing a percentage of the completed sale; in some cases, the “fee” is just an informal gift.
Understanding a Finder’s Fee
A finder’s fee is a reward and thus a form of incentive to keep business contacts and resources communicating the needs of a company or organization to potential clientele or partners. While contracts are not required in such arrangements, structuring and agreeing to terms for finder’s fees can keep all parties in agreement on the scope of compensation that will be paid. This may be especially useful for contacts who repeatedly attract business to the company.
In many cases, the finder’s fee may simply be a gift from one party to another, as no legal obligation to pay a commission exists. A finder’s fee is thus different from a service charge, which is a mandatory fee paid to a person or business in exchange for completing a service.
Examples of Finder’s Fees
Finder’s fees may be used to reward business contacts, who refer new clients or bring in new sales, to a company. For instance, if a contact arranges a meeting between the buyer and seller of a business, they might receive a finder’s fee for arranging the deal. This can also apply to businesses that seek and gain investors through referrals from others.