Legal Definitions - del credere commission

A del credere commission is a special type of fee paid to an agent, often called a "factor," who sells goods or services on behalf of another party, known as the "principal." What makes this commission unique is that the agent not only facilitates the sale but also provides a guarantee to the principal that all buyers will pay for the goods or services purchased through the agent's efforts. In essence, the agent takes on the financial risk of buyer default. Because the agent assumes this additional risk, their commission rate is typically higher than a standard sales commission.

Here are a few examples to illustrate this concept:

• Art Gallery Consignment: Imagine a painter (the principal) who consigns several artworks to an an art gallery (the factor) for sale. Under a standard agreement, if a buyer purchases a painting but then fails to pay the gallery, the painter might not receive their share of the sale. However, if the gallery operates on a del credere commission basis, it guarantees the painter will receive their agreed-upon payment for any sold artwork, even if the buyer defaults on their payment to the gallery. For taking on this financial risk, the gallery charges a higher percentage commission on each sale.

• Agricultural Produce Distribution: Consider a small organic farm (the principal) that uses a large distributor (the factor) to sell its fresh produce to various restaurants and grocery stores. If the distributor works on a del credere commission, they promise the farmer that the farm will be paid for all produce sold, regardless of whether a specific restaurant client later goes out of business or fails to pay the distributor. The distributor's commission for this service would be higher to compensate for the financial risk they assume.

• Specialized Equipment Reseller: A manufacturer of high-tech industrial equipment (the principal) partners with an independent reseller (the factor) to reach a broader market. The reseller agrees to a del credere arrangement, meaning they guarantee the manufacturer will receive payment for all equipment sold through the reseller, even if a corporate client defaults on their payment terms with the reseller. This added assurance for the manufacturer comes at the cost of a higher commission percentage paid to the reseller.