Finder’s Fee
A finder’s fee (also called a referral fee or referral income) is payment to an intermediary who connects parties and helps facilitate a business transaction. The fee rewards the person or entity that sourced the deal or introduced the buyer and seller, on the presumption the transaction might not have occurred without that connection.
How it works
- An intermediary identifies or introduces a potential buyer, seller, investor, contractor, or other counterparty.
- If the introduced parties complete a transaction, the intermediary receives compensation from the buyer or seller (or rarely, a third party).
- Arrangements can be informal (a one‑time gift) or formalized with a written agreement specifying scope, timing and amount of payment.
Typical terms and standard fees
- Fees vary widely by industry and deal type. Benchmarks often range from about 5% to 35% of the transaction value, though many finder’s fees are much smaller or flat amounts.
- A finder’s fee differs from a commission or service charge, which are typically legally owed for completed services. A finder’s fee is usually discretionary unless contractually agreed.
- For repeated or material introductions, formalizing terms in writing is strongly recommended to avoid disputes.
Common examples
- Business broker introduces buyer and seller for a company sale and receives a percentage of the sale price.
- Contact refers an investor who invests in a startup; the referrer receives an agreed fee or percentage of funds raised.
- Individual locates a buyer for a private property sale and receives a small percentage of the sale or a one‑time thank‑you payment.
- Company hires contractors or freelancers introduced through an intermediary and pays a referral fee.
- Corporate procurement: a person connects a buyer with a seller of equipment or inventory and receives compensation when the purchase is completed.
Legal and practical considerations
- Legally binding only if parties enter a contract or written agreement that creates an enforceable obligation.
- Licensing and industry rules may affect whether and how referral fees can be paid (for example, some regulated professions require disclosures or prohibit unlicensed fee arrangements).
- Tax treatment: referral income is generally taxable; recipients should report payments according to applicable tax rules.
- Best practice: document the agreement—amount or percentage, who pays, payment timing, confidentiality and any conditions (e.g., whether payment survives deal cancellations).
Monetary vs. non‑monetary rewards
- A finder’s fee can be monetary (cash, percentage of sale, or flat fee) or non‑monetary (gifts, discounts, or services) depending on the parties’ preferences and industry norms.
- Even non‑monetary rewards should be agreed upon to prevent misunderstandings.
When is a finder’s fee paid?
- Payment typically occurs after the referred transaction closes or at another agreed milestone.
- Some agreements provide staged payments (e.g., deposit on signing, remainder on closing) or contingent payments tied to performance.
Key takeaways
- A finder’s fee compensates someone who brings parties together and facilitates a deal.
- Terms vary greatly; fees commonly range from a small flat amount to a percentage of the deal value.
- Put repeat or significant arrangements in writing, watch for industry rules, and treat referral payments as taxable income.