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I own and operate a company selling products online. A partner is stepping in and wants to sell our product line across it's websites.

However, my company will accept the payments from the buyers. The partner will refer the clients to my website for checkout. My partner will receive a cut from each sales.

He would like a system where there is no possibility of me cheating the numbers and underevaluating the commission he should get.

What are the options?

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2  
Tell that dude to get real. If YOU handle the finances, there is no way to have a mechanism that can not be manipulated. Simple like that - reality sucks, but it is as it is. You have access to the system, you can manipulate it. He does not want that - you don't handle money or have no system access. Simple like that. – NetTecture Apr 18 '12 at 6:11
Can you not build some kind of reporting system that logs referral business and provides some kind of audit trail to keep your partner happy. – Brad May 4 '12 at 19:22

6 Answers

up vote 6 down vote

In the agreements that I work on, the typical approach is that the payee has the right to audit the payer's accounting records. If an underpayment is discovered, the payer pays the underpayment amount plus interest. If the underpayment exceeds X% of the amount due, the payer also reimburses the payee for the cost of the audit.

I don't know whether this approach is feasible in your situation.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

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lol @ the last bit. God it must be annoying being a lawyer sometimes... – Maxim Gershkovich Apr 18 '12 at 4:25
It is not only feasible, it is the only way. There is no magical solution that will make sure someone does not fake the books when handing out commissions. The original request is very naive to start with (the one from the partner, not from the poster). – NetTecture Apr 18 '12 at 6:10
up vote 1 down vote

Commonly dealt with by giving them an audit right -- if they think you're cheating, they can come look at your books. If they're right (by more than a few percent), then you pay for the cost of the audit (and sometimes, some sort of penalty). If they're wrong, then they pay.

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He would need to have client identification and not just be able to forward an anonymous user. – JeffO Apr 17 '12 at 16:48
WEll, the audit's usually done in aggregate -- over the past 3 months, you paid me $x, when you should have paid me $y. Individual clients aren't really relevant at that point. – Chris Fulmer Apr 17 '12 at 16:58
The whole point it so determine what "should have" been paid. You have to identify which purchases were the result of a referral from a particular site. – JeffO Apr 17 '12 at 17:05
Yes. But, the seller has to have that information in his records, or he can't compute anything at all. If the problem is that the system isn't recording referrals correctly, then that should also show up in the audit. – Chris Fulmer Apr 17 '12 at 17:08
The problems with auditing are 1) Hiring a CPA firm to do a proper audit is expensive and 2) the CPA firm will be the first to tell you that an audit should not be expected to uncover fraud or collusion, the very things the client is concerned about. – JonnyBoats Apr 17 '12 at 18:50
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up vote 0 down vote

The simplest option you have is to establish a single fee rate for each referral which you will pay your partner. In this way you have no possibility of cheating since every pass through will be logged by your partner and by you so you can reconcile the lists if necessary.

All other situations would be much more complex to implement and will require you opening up your system to your partner which normally you wouldn't want to do.

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up vote 0 down vote

Why not simply let the partner collect the retail price directly from the customer and remit the wholesale price to you? You would then only ship goods for which he had already paid you.

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This requries the partner to set up their own e-commerce system. – dnbrv Apr 17 '12 at 16:43
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@dnbrv - and that's how he gets "no possibility of cheating." – JeffO Apr 17 '12 at 16:49
up vote 0 down vote

Your partner would have to identify clients on his website (at lease get their email address) and follow-up with everyone who is referred to your website with a survey. He can compare those who indicate they made a purchase, with his commissions. This could be used as grounds to file a complaint and have access to your records.

The only perfect solution would involve his website being able to process purchases on your site through some sort of web service. This could be cost prohibitive to both of you.

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up vote 0 down vote

He's your partner or not? If you have got a partner you should trust in him and he should trust in you. If you don't trust in each other you can't be partners.

Screenshots of websites can be fake but if you're partner is not extremely technical he'll trust in them more than anything else. So show him what amount of money you've got from each client. (Best are screenshoots of clickbank or paypal accounts)

Using ePayment systems like http://webpayments.fi will be good if you want to prevent cheating but you often need to pay a little fee.

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