Paying your distributors in a timely manner is vital to the success of any direct sales organization. Late or infrequent payments can decrease motivation to sell your products, which can damage your reputation and bottom line.
Due to fraud, money laundering, and other illegal activities, banks and financial institutions monitor the following transaction types closely:
- Frequent, irregularly spaced money transfers
- Abnormally large or small money transfers
- Transferring money to foreign accounts
Too many “suspicious” transactions can result in frozen accounts and federal investigations. However, direct selling companies need to make these types of transactions in order to pay their distributors.
It’s a catch-22 direct sellers have dealt with for a long-time. Most direct selling companies utilize a payout provider to combat this issue. A payout provider is a third-party company that specializes in moving money quickly and efficiently, while maintaining full compliance.
How payouts work
The payout provider will streamline and automate the payment process for you. You simply have to provide the cash.
You can often integrate to a payout provider through your back office software. The payout provider places the money to pay you distributors in a funding account. Once a distributor sets up an account with the payout provider, they will receive a notification when they are eligible to receive a payment. They can then login to the provider’s payout portal and select how and when they would like to be paid.
Keep in mind that not all payment providers have the same capabilities. You want to work with a provider that offers the following features:
- Automated payments — Transferring funds to your payout provider should be automatic and on a schedule you set. If you have to make manual transfers, you risk missing deadlines and having insufficient funds to pay your distributors.
- Multiple payment methods — Some of your distributors will want to be paid via direct deposit, others may want to use PayPal or similar tools. A quality payout provider will offer multiple payout methods so you can accommodate all of your distributors.
- International payouts — If you have (or plan to have) foreign distributors, you’ll need a payout provider that can send money to foreign bank accounts. Not every payout service is available in every country. Check to see whether your vendor provides payouts in the countries where your distributors are based.
- Fast payouts — If distributors have to wait weeks or months to receive their payments, they can easily become unmotivated. You want a payout provider that can pay your distributors as soon as possible.
- Compliance — Compliance is crucial, especially for companies with sophisticated payment needs and complex merchant profiles. The best providers stay up-to-date on the latest compliance regulations and will help you avoid any potential pitfalls.
Using a payout provider does resolve many issues direct sellers face, but not all of them. There are still risks to using a single payout provider.
Risks of using a single payout provider
As mentioned above, not all payout providers offer the same features and capabilities. Relying on a single payout provider exposes you to a number of risks, including the following:
- Restricted business growth — Different payout providers offer different levels of international connectivity. If you only have one payouts provider, then your company is limited to expanding into the countries where that specific provider operates.
- Limited options to pay distributors — Distributors want to be paid when they want and in a way that works best for them. A single provider limits the channels and timeframes you have to pay your distributors.
- Inflated operational costs — A payouts provider may be the cheapest option for your distributors in one country, but the most expensive option in another. Using only one provider requires you to average your expenses instead of optimizing them.
- Insufficient strategic agility — Policies change, servers go down, and people make mistakes. The best way to minimize damages from unexpected disasters is to have a backup plan if one aspect of your payouts solution fails.
The unfortunate truth is that one payout provider will not be able to solve all your problems. By using multiple providers, you can take advantage of the best features each one has to offer and optimize your payout processes. The downside of using multiple providers is that you have multiple software integrations. The more software integrations you have to manage, the greater drain on your resources, and the more you have to keep track of.
Is the decreased risk and increased optimization of using multiple payout providers worth the hassle of multiple integrations?
Well, it depends. For established and growing direct sales companies, the trade-off is likely worth it. For businesses that are just getting started, the simplicity of a single provider may be the better choice. It just depends on what goals you’re trying to achieve.
In an ideal world, you wouldn’t have to choose. You’d be able to utilize multiple payout providers, but only have to manage one integration. Wait a second…that’s what Nexio does!
Upgrade your payout provider to a payout orchestrator
Nexio’s platform empowers you to:
- Simplify your business operations and payouts through a single integration.
- Optimize the payout process so your distributors are paid in minutes instead of weeks.
- Scale quickly into new markets and countries.
Nexio was purpose-built to tackle the payment complexities direct sellers face. Our single point of integration mimics the simplicity of using one payout provider, while also supplying all the benefits of working with multiple vendors. You have access to as many — or as few — payout providers your business needs. As with all Nexio products, you maintain the ability to adapt and change as your business grows.
Contact us to see what Nexio can do for you.