Many companies offer cash incentives for referral business. They usually target affiliates who are in a position to send them streams of consistent referrals.

In most cases, these referral fees are honest, ethical and fully disclosed to all parties. Sometimes they are not as transparent, however. In these cases the incentives may be paid in cash, under the table, and no one knows about it. Either way, there may be unintended negative consequences.

Imagine a company offers to pay you $500 for each referral you send them. You become excited and motivated about this new income stream. You start recommending them to your family, friends and clients. These people act on your recommendation because they trust you. Would they act if they knew your primary motive was the referral fee? How badly will your reputation be damaged if the company does a terrible job? Are you possibly putting them at risk for your own personal gain?

Not everyone will be motivated by a cash incentive for referrals. Some people will feel a conflict of interest if they accept a payment for a referral. Typically, people refer business to people because they trust them, not because they are being paid. Trust is the only criteria normally needed to make a recommendation.

Many others will instantly come to the conclusion you must be charging your clients too much if you can pay a $500 referral fee. In their mind, you should lower your prices by $500 and give the credit to your clients instead.

Here is one final point to consider. Most people believe that if you provide exceptional service and value, referrals will come naturally as a result. If you must pay cash to get referrals, what does that imply about the quality and value of your service?

Be sure to read next week’s Biz Tip article on the risks of paid endorsements from the client’s perspective.

Bill Nordbrock is vice president of community relations for SCORE Southern Arizona, a nonprofit group that offers free small-business counseling and mentoring by appointment at several locations. For information, go to southernarizona.score.org, send an email to mentoring@scoresouthernaz.org or call 505-3636.