Fees and terms of business: the clauses that decide whether you get paid

Every agency has a terms of business document. Very few have read it recently, fewer still wrote it deliberately, and a surprising number are operating on a template that was adapted from another agency's template a decade ago. It only matters when something goes wrong — which is precisely the argument for getting it right while nothing has.

This is a practical walk through the clauses that decide whether a fee is collectable, and where agencies most reliably give away margin without noticing. It describes commercial practice rather than the law of any particular jurisdiction, and it is not legal advice — the statutory framework around agency work differs significantly between markets, and your terms should be reviewed by someone qualified in yours.

The introduction clause is the whole document

Everything else is detail. The introduction clause defines what you did that earns a fee, and it is the clause that gets tested when a client argues they already knew the candidate.

A weak clause says a fee is due when the agency "introduces" a candidate who is subsequently engaged. That invites the obvious dispute: the candidate had applied directly two years ago, or a director knew them socially, or they were on the client's own database. A strong clause defines introduction precisely — the submission of a candidate's details in a specified form, to a specified recipient — and states the period during which an engagement following that introduction attracts a fee.

Two things make it enforceable in practice. First, the introduction has to be evidenced, which means submissions need to go through a system that timestamps them rather than through a personal inbox. Second, the clause should cover engagement in any capacity — permanent, contract, consultancy, or through a third party — because the standard avoidance route is to engage the candidate in a form the terms did not anticipate.

It is also worth specifying that the fee is payable if the candidate is engaged by an associated company of the client. Groups with multiple entities are where introductions most often get quietly rerouted.

Rebates: the clause you should be pricing

A rebate returns some of the fee if the placement ends within a defined period. Common structures step down over time — full refund inside the first few weeks, a partial refund for a further period, nothing thereafter.

Two decisions matter more than the percentages.

Rebate or replacement? A replacement guarantee obliges you to fill the role again rather than return cash. It is significantly better for the agency: you keep the fee, and you are being paid for work you were going to do anyway. Many clients accept a replacement guarantee as the default with a rebate only where replacement is not possible. If your terms offer a cash rebate as the primary remedy, you are giving something away that a large part of the market does not.

What voids it? A rebate should not apply where the reason for the placement ending has nothing to do with the candidate's suitability — redundancy, restructure, the role changing materially, the client failing to pay on time, or the candidate leaving because of something the client did. Terms that offer an unconditional rebate for any departure within twelve weeks are underwriting the client's management quality at your expense.

Payment terms, and the gap nobody prices

Two questions: when does the fee become due, and when is it payable?

Due on start date is standard. Due on acceptance is better for cash flow and harder to negotiate. Whichever you use, be explicit — "on placement" is ambiguous and will be read in the client's favour.

Payment terms of 30 days on a fee due at start date means you are typically 30 days from a start that was itself weeks after the work concluded. Against a rebate period of, say, twelve weeks, you may be carrying the risk for a considerable period after being paid, or waiting a considerable period to be paid at all. Agencies that model this properly usually conclude that shortening payment terms is worth more than raising the percentage.

Two clauses are worth having and are frequently missing: interest on late payment, and an express right to suspend work on other roles while an invoice is overdue. Neither is aggressive; both change the conversation.

What the percentage should actually reflect

Permanent fees are conventionally a percentage of first-year remuneration, and the number is more negotiable than most agencies behave as though it is. The two things that move it are exclusivity and payment structure.

Contingent, non-exclusive work carries the highest risk — you may do the entire search and be paid nothing — and should carry the highest rate. Exclusive assignments justify a lower rate because your probability of being paid rises substantially. Retained work, where a portion is paid up front and on milestones, justifies a lower rate again.

The definition of remuneration is where margin quietly leaks. If your terms say "basic salary", you have excluded guaranteed bonus, car allowance, sign-on payments, and anything else the package contains. If they say "total first-year remuneration including all guaranteed and anticipated payments", you have not. Also specify the treatment of part-time roles, of packages in another currency, and of a salary that is agreed and then revised upward before the start date.

Temporary and contract: a different commercial shape

Contract work is a margin business rather than a fee business, and the terms need to cover a different set of risks.

• Temp-to-perm. If the client engages your contractor permanently, what happens? A transfer fee, or a defined period of continued hire after which no fee is due, both work — but the clause must exist, must specify the qualifying period, and must be workable, or you will lose contractors to conversion with no compensation.
• Timesheet authorisation. Specify what constitutes approval, what happens when a timesheet is not authorised within a set period, and that failure to authorise does not by itself defer payment. Unauthorised-timesheet disputes are among the most common sources of unpaid contract revenue.
• Rate changes and notice. Both directions, in writing, with a stated notice period.
• Who bears the employment costs. Statutory on-costs — employer social contributions, holiday accrual, pension obligations, and any applicable levies — must be explicit in the charge-rate definition. An hourly charge rate quoted without stating whether these are included is a dispute waiting to happen, and the components vary by jurisdiction and by engagement model.
• Compliance and status. Where a jurisdiction imposes worker-status or equal-treatment obligations, terms should state who determines status, who holds the liability, and what happens if a determination changes mid-assignment.

Where agencies most often give margin away

Four patterns recur.

Signing the client's terms without reading them. Large clients routinely require their own purchasing terms, which are drafted to protect them and frequently contain unlimited rebates, extended payment terms, unilateral rate reductions, and liability provisions that no agency should accept. The volume is real and so is the risk; at minimum, negotiate the rebate and liability clauses.

Discounting the rate instead of the risk. When a client pushes on price, the reflex is to cut the percentage. The better trade is to hold the rate and ask for something that reduces your risk — exclusivity, a shorter payment term, a defined feedback service level, or a commitment on volume. You are being asked to give something; give something that costs you less than margin.

Letting terms go stale per client. Terms signed four years ago with a client whose business has changed, whose entity structure has changed, and whose rates have not, are a slow leak. Review the top accounts annually.

Not tracking which terms apply. Agencies with dozens of client agreements, each amended differently, frequently cannot answer what rebate applies to a given placement without someone finding the PDF. That is an operational problem with a commercial cost — it means nobody is managing the exposure in aggregate. Holding terms against the client record, with the rebate and payment terms as structured fields rather than an attachment, makes the exposure visible.

A short review checklist

If you do nothing else, work through this against your current document.

1. Does the introduction clause define introduction precisely, cover engagement in any capacity, extend to associated companies, and state a validity period?
2. Is your primary remedy a replacement guarantee rather than a cash rebate, and is the rebate void where the departure was not about candidate suitability?
3. Does "remuneration" capture the whole package, not just basic salary?
4. Are due date and payment date stated separately and unambiguously?
5. Do you have late-payment interest and a right to suspend?
6. For contract: is temp-to-perm covered, is timesheet authorisation defined, and are statutory on-costs explicit in the charge rate?
7. Do you know, without opening a PDF, which terms apply to your ten largest clients?

That last question is usually the one that lands. The commercial terms are the shape of the business, and they belong where the rest of the client relationship lives — not in a folder. If you are also rethinking how those relationships are won in the first place, business development in a buyer's market picks up where this leaves off.