Del Credere Agency

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 and the agent not only acts as the broker of the principal but at the same time he also undertakes the guarantee of the credit which is extended to buyer i.e., in case the buyer makes any default in the payment of the money, then the agent would be liable to the extent of that amount to the seller.

Del Credere Agency

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Example of Del Credere Agenc

Let’s 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 buyer i.e., in case the buyer makes any default in the payment of the money, then 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 relationship of principal-agent 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 the responsibility for the same and in case the buyer is unable to 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 of Del Credere Agency

The different advantages related to the del credere agency are as follows:

  • 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 case of the default in the payment by the buyer, the seller will get his money back from the agent.
  • From the point of view of the agent, 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 this is a benefit for the agent.
  • From the point of view of the agent, for undertaking the extra risk, he will get the extra payment from the seller over and above the normal payment which he could have got in case the extra 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 of Del Credere Agency

The disadvantages related to the del credere agency are as follows:

  • 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 normal payment which he could have given in case the extra risk would not have been undertaken by the agent. So, in those cases also in which there is no default that has taken place, the seller has to pay the extra commission to the agent.

Important Points about Del Credere Agency

The different important points related to the del credere agency are as follows:

  • 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. The issues where the agent will not be liable includes, dispute arising between the buyer and the seller.
  • For undertaking the extra risk by the agent in 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 as well as 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.
  • The nature of the Del Credere agency is such that it puts the agent in the agency in the situation wherein he has the responsibility in connection with the seller as well as the buyer and of product or service under consideration.

Conclusion

Thus, in case of the Del Credere Agency, there is the relationship of principal-agent 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 extra risk wherein case the buyer makes any default in the payment of the money, then 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 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. The issues where the agent will not be liable includes, dispute arising between the buyer and the seller. Also, for undertaking the extra 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.

This has been a guide to what is Del Credere Agency and its meaning. Here we discuss an example and role of del credere agent along with advantages and disadvantages. You can learn more from the following articles –

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