Del Credere Agency

Updated on May 13, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Del Credere Agency?

Del Credere Agency refers to the relationship between the agent and the seller wherein the seller acts as the principal. The agent acts as the broker of the principal and undertakes the guarantee of the credit, which is extended to the buyer, i.e., in case the buyer makes any default in the payment of the money. The agent would be liable to the extent of that amount to the seller.

Del Credere Agency

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The nature of the Del Credere agency is such that it puts the agent in the agency in the situation wherein they have the responsibility in connection with the seller and the buyer and of product or service under consideration. The agent or broker offers assurance of no default from the side of the buyer to the sellers, and in case they default, the accountability rests on the agent’s shoulders.

Key Takeaways

  • Del Credere Agency is a relationship between an agent and a seller, where the seller acts as the principal and the agent acts as the broker, guaranteeing credit to the buyer in case of default.
  • Del Credere agency focuses on payment if the buyer defaults, with the seller paying additional commission for insurance services, fostering a responsibility-based relationship between agent and buyer.
  • Agent undertakes additional risk through insurance services, requiring the seller to make extra commissions, known as Del Credere commissions, for both sales and insurance services.

Del Credere Agency Explained

A Del Credere Agency signifies the principal-agent relationship between the seller and the agent under the transaction wherein the agent, along with acting as the salesperson on behalf of the seller, also performs the function of the insurance firm by undertaking the additional risk wherein case the buyer makes any default in the payment of the money. The agent would be liable to the extent of that amount to the seller.

However, the agent becomes liable for the payment to the principal only if the buyer defaults in making the payment, and the same is not liable in case of any other issues that might arise between the buyer and the seller. The issues where the agent will not be liable include disputes between the buyer and the seller. Also, for undertaking the additional risk by the agent in the form of the insurance services, the seller has to make extra to the agent known as the Del Credere commission.

In the Del Credere agency, the agent becomes liable for the payment to the principal only if the buyer defaults to make the payment. The same is not liable in case of any other issues that might arise between the buyer and the seller. The issues where the agent will not be liable include disputes between the buyer and the seller.

For undertaking the additional risk by the agent in the form of the insurance services, the seller has to make extra to the agent, i.e., the agent will receive the normal commission for the sales and the extra commission for undertaking the insurance services. This extra payment is generally in the form of the additional sales commission, which is known as the Del Credere commission.

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Example

Let us take an example of the del credere agency.

Mr. X appoints Y to sell the goods in the market on the terms that Y has to undertake the guarantee of the credit, which is extended to the buyer, i.e., if the buyer makes any default in the payment of the money. The Y would be liable to the extent of that amount to Mr. X. Also, it was decided that Y would not be liable to Mr. X for any other issue apart from any default in making the payment.

In the present case, there is the principal-agent relationship between Mr. X and Y as Mr. X appoints Y to sell the goods in the market on the condition that if any credit is extended to the buyer, then Y has to take responsibility for the same. If the buyer cannot repay the amount, then Y has to correct the default and pay the amount to Mr. X. Also, it was decided that Y would not be liable to Mr. X for any other issue apart from any default in making the payment. So, this is the case of the Del Credere Agency.

Advantages

Being in connection with a Del Credere agency has multiple advantages, especially when it comes to assuring sellers of no defaults. Some of the benefits of these agencies working on board have been listed below:

  • From the point of view of the seller, in case the buyer makes any default in the payment of the money, then the agent would be liable to the extent of that default amount to the seller. So, in the buyer’s default payment, the seller will get his money back from the agent.
  • From the point of view of the agent, in the Del Credere agency, the agent becomes liable for the payment to the principal only in case the buyer defaults in respect to making the payment, and the same is not liable in case of any other issues which might arise between the buyer and the seller. So this is a benefit for the agent.
  • From the agent’s point of view, for undertaking the additional risk, he will get the extra payment from the seller over and above the regular payment, which he could have gotten in case the additional risk would not have been undertaken. This extra payment is generally in the form of the additional sales commission, which is known as the del credere commission.

Disadvantages

Besides having multiple advantages, the Del Credere Agency also has some limitations, which the principal and agent in the process must be aware of. Let us have a look at a few disadvantages below as well.

  • From the point of view of the seller, in Del Credere agency, the agent becomes liable for the payment to the principal only in case the buyer defaults in respect to making the payment, and the same is not liable in case of any other issues which might arise between the buyer and the seller. So in case any dispute arises between the buyer and the seller, then the seller will not be able to recover the amount from the agent.
  • Also, the seller has to give the extra payment to the agent over and above the regular payment, which he could have given if the agent had not undertaken the additional risk. So, in those cases where no default has taken place, the seller has to pay the extra commission to the agent.

Frequently Asked Questions (FAQs)

What is a Del Credere Agency in law?

A form of a principal-agent partnership known as a Del Credere Agency involves the agent acting not only as the principal’s salesperson or broker but also as the buyer’s credit guarantee.


What is the role of Del Credere Agency agents in foreign trade?

In exchange for an additional fee, a Del Credere Agency agent assures that the third party will uphold the terms of the contract on behalf of the principal.

What is the difference between a broker and a del credere agent?

In a typical principal-agent arrangement, the agent serves as the principal’s salesman or broker. A Del Credere Agency is a principal-agent partnership where the agent guarantees the buyer’s credit.

Is a Del Credere Agency the same as a collection agency? 

No, they are different. A Del Credere Agency focuses on guaranteeing payment for goods sold and assumes credit risk. At the same time, a collection agency typically engages in debt recovery after a payment default has occurred.

This has been a Guide to what is Del Credere Agency. Here, we explain the concept along with an example, advantages, and disadvantages. You can learn more from the following articles –

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