For ISVs, Integrators & Aggregators

Improving MDF Payments

Channel technology service providers are leading the push to streamline channel operations by embedding payments functionality within their solution architectures…

Using APIs is the most efficient means to access and embed the capabilities of an intelligent payments platform, allowing for optimal payment automation to reduce administrative burden and operating cost.


MDF is used here as both an acronym for Market Development Funds, and as a generic term for many types of contingent development funds such as Joint Marketing Funds (JMF), Business Development Funds (BDF), Co-op funds, etc. What is common to all these funds is that they are likely to be claims-based with both an ‘approval’ stage and a ‘disbursement’ stage.

Accrual-based MDFs are performance-based where the total amount of funds available is determined based on the prior period’s performance (e.g. sales revenue in a fiscal year or quarter) and therefore are effectively pre-approved based on the accrual earned. For accrual MDF, expenditures are pre-approved up to the limit of their accrued funds. The funds typically are available only if used in the following period and only for specific, qualifying purposes. Hence, they generally require proof of performance (i.e., a claim) to show that expenditures were made for qualifying activities within the qualifying time period and for a specific amount not to exceed any remaining accrual prior to the release of payments. From the vendor’s perspective, the accruals are based on a percentage of revenue; thus, if revenue grows, then the MDF accruals grow as well – and if revenue is down the accrual budget falls in sync.

Some vendors, however, prefer to allocate marketing budgets as a fixed amount to manage development funds. These vendors choose to manage their marketing budget by setting a quarterly or annual budget, then track approved proposals and paid claims against that budget, declining new requests once all the funds have been allocated to approved activities.

Proposal-based MDFs are based on proposals submitted by the channel partner to conduct a qualifying activity subject to approval by the vendor for qualifying activities. Each request is approved for a specific amount and once the qualifying activity Is completed, a reimbursement claim is submitted with the required proof of performance.

Many vendors operate with a combination of both accrual and proposal-based MDF.
A common practice for either type includes a matching funds component for some or all activities. For example, most activities may be subject to 50%/50% funding between vendor and channel partner. However, some activity types may be promoted by changing the matching fund percentage, e.g., 75% or even 100% vendor funded. And many, if not most, vendor programs require additional reporting to include measurable results such as calculated MROI, lists of attendees, lead and deal data, etc.

MDF Disbursements

Once the claims are approved, MDF payments are disbursed to reimburse the channel partner. Reimbursement, by definition, means that the partner may be out of pocket until they receive the MDF payment. Thus, anything that can be done to improve the speed of payment will be well received by the partner.

Cross-border Payments for Global MDF Payments

Nowhere is the need more acute than when managing MDF payments globally. Using a global payments platform can make life simpler for global MDF program managers and their agency or service provider. Service providers can configure global MDF programs so that their client vendors can create and fund digital wallets in as many currencies they need – USD, Euro, British Pound, Yen, Yuan, etc. In the past, creating currency-specific accounts has been limited to the vendor’s legal structure and where they do business.

The ability to create multi-currency digital wallets gives the program designer more choice and more control for their clients, while eliminating the lengthy delays and high fees associated with international payments using traditional methods.

Managing the Flow of Funds

Cash flow is extremely important to most partners. Unsurprisingly, there are different approaches to keep the partner as whole as possible.

One approach is to maintain a list of approved marketing suppliers and release payments directly to the supplier once the partner confirms completion of the delivered goods or services. While this has the benefit of not requiring the partner to be out of pocket for the vendor’s share of the marketing expense, it creates administrative burdens for the vendor to maintain lists of qualified suppliers and agreements amongst all the parties on how the flows of funds will work. And many partners would prefer to work with their own list of preferred suppliers.

Given that the bulk of MDF payments are reimbursing the partner for their expenditures, it’s essential that partner payments can be made immediately, transparently and securely – and in multiple currencies to meet global MDF program demands. Whether making disbursements directly to partners or to marketing suppliers, MDF payment processes can be more automated, less administratively burdensome and more partner-friendly using a global payments platform and digital wallets.

Embedding the payment platform capabilities within their MDF solution, enables channel technology service providers to streamline payment distribution using APIs and also offload tax reporting related to these partner payments to the payments platform. The platform collects taxpayer IDs as needed and provides self-serve tools for partner payees to gather data needed for tax reporting globally and issues 1099-Ks for all US payees.

Channel technology service providers, of course, can design their MDF solutions to meet any requirements needed to meet market demands and simply embed the white labeled payment platform as part of their branded solution. At their discretion, they can deploy the digital wallet architecture to pay any vendor’s partner, vendor’s supplier, partner’s supplier, or any combination directly. Paying anyone can require as little as their email address and the payment amount, the platform gathers additional data for KYC and AML compliance as well the Tax ID as noted above.

These built-in capabilities, including multiple payment methods and multi-currency wallets, enables service providers to consider alternative payment workflows heretofore implausible when the only payment options were a direct deposit via EFT into a channel partner’s bank account or mailing a cash check. And, similar to the tax reporting, managing partner banking details is completely handled with self-service tools by the payments platform.

Wallet-to-wallet exchanges between beneficiary account (payees) are unrestricted on the payments platform giving the vendor’s partner the potential for greater autonomy in managing their suppliers and the flow of designated funds Another possibility would be to use connected accounts to allow the vendor to directly transfer funds to the supplier on behalf of the partner.

These are but a few examples. Channel technology service providers, to be sure, have many more variations on these processes. Imagine, if you will, a MDF program with multiple tiers of participation, where development funds flow through the partners directly to customers immediately upon completing an important step to the sale (e.g. demo or test drive) transferred digitally to customer’s bank or a gift card from the partner’s MDF funded digital wallet. The possibilities are endless!!


No matter the use case: global, instant and mobile payments are the new norm. Encompassing digital payments in a platform that surrounds them with the security, privacy, tax and regulatory compliance needed to conduct global channel business enables channel technology service providers to focus their service and technology innovations in a rapidly changing marketplace.

To learn more ask for a demo or drop us a line to let us know how we can help make your development fund disbursements more efficient and cost effective.

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