Del Credere Agency: Definition and Example

What Is a Del Credere Agency?

A del credere agency guarantees the creditworthiness of a buyer and, in case of default, assumes the risk posed to the seller. Del credere means believe in Italian.

Understanding a Del Credere Agency

A del credere agency is a type of principal-agent relationship wherein the agent acts not only as a salesperson, or broker, for the principal, but also as a guarantor of credit extended to the buyer. If the buyer is unable to pay the bill after the transaction is completed, a del credere agent may become liable for that amount.

A key point to note is that a del credere agent only becomes liable to pay the principal after the buyer defaults on payment. If the principal (seller) is unable to collect for some other reason, such as a dispute over the goods delivered, the del credere agent is not liable.

The nature of a del credere agency puts the agent in a situation where they have responsibilities connected to both the buyer and seller of the product or service in the transaction. When they sell the service or product, they also guarantee the buyer will pay for it appropriately.

Payment for this insurance service is made in the form of an additional sales commission, known as a "del credere commission." It is not uncommon for a del credere agent to charge higher rates in addition to their commission because they are taking on greater risk with clients. A del credere might choose to only work with buyers with a certain credit rating or level of solvency to better ensure they will consistently pay their bills.

Example of a Del Credere Agency

Auction houses can be a form of del credere agency. When the owner of a product, or item, wants to put it up for auction, they typically reach terms with an auction house, or auctioneer, to handle the sale. The auction house will then set rules and terms of the auction to potential bidders.

There may be certain requirements to become a bidder, especially if the item up for auction is estimated to be of significant value. Requirements to bid can include making a deposit or providing some other proof of liquidity. This is to ensure that the winning party can make good on the amount they bid.

If the winning bidder cannot, or chooses not to pay the agreed-upon price, the auctioneer is within their legal rights to pursue further action to collect. The product also might be put up for sale again through an auction. The preferred option for auctioneers, as del credere agents, is to see the buyer make full restitution for the transaction.