Flexible Funding 101: Think of Split Funding, Only Better

Flexible Payments

How Software Providers and their Clients Win with Flexible Funding

Split funding has a history of offering convenience and easier accounting, but the latest evolution of this monetary disbursement process makes it even better for independent software vendors (ISVs) and the software clients they serve. The funds disbursement process of the future is here, and it’s called flexible funding.

What Is Flexible Funding?

To understand flexible funding, let’s start with the basics: What is merchant funding? Merchant funding is the process of transferring money that an organization receives through digital transactions into a demand deposit account (DDA).

Under standard merchant funding, credit card fees are deducted, and deposits are made into a single merchant deposit account. When it comes to fund disbursement, splitting monies across multiple financial institutions or bank accounts includes manual intervention after the initial deposit – a cumbersome and inconvenient extra step. With flexible funding, settlement deposits can be disbursed into multiple bank accounts in an automated process, saving time and effort. Flexible funding gives merchants and software providers options to best fit their business models and preferences.

Use Cases for Flexible Funding

Here are some common use cases where flexible funding makes a difference:

  • Franchise support. ISVs that offer support to franchised businesses have a simpler way to assess royalties based on transaction fees. Flexible funding allows royalty fees to be deposited into the account of a franchisor while the remaining balance goes into the account of the franchisee.
  • Nonprofit donations. Flexible funding lets nonprofit organizations offer their supporters the option to make an additional small donation on top of a main gift as a percentage-based or flat amount to cover interchange costs. This can save a nonprofit thousands of dollars in administrative fees. Meanwhile, additional donations deposited to a designated, separate account make for easy reconciliation.
  • Cover software subscriptions fees. Flexible funding enables software providers to pay software fees with their payment card transaction funds. Fees can be calculated at a flat rate or assessed as a percentage of transaction volume processed. Funds are disbursed between the software client’s deposit account and that of the software provider.
How Does Flexible Funding Work?

The process of flexible funding is straightforward. A processor deposits settled funds into a single master account. These funds then pass to a funding engine that utilizes a core rule set, which drives the type of fees applied to a given transaction. The rule set dictates both the fees and splits that apply to the transaction. Fees and splits can be configured at the partner or merchant level as a default (static), or on a per transaction basis (dynamic).

Here are some examples of simple funding splits but custom and complex flows are also possible:

  • User A processes a transaction for $101.00. User B always receives $1.00 from each transaction.
  • Each transaction is split five ways from User A’s transaction.
Why ISVs and Merchants Love It

Flexible funding appeals to ISVs and merchants for several reasons. These include:

  • It’s simple and competitive. Software providers can price their offerings in a manner that is simpler for customers to understand by collecting software service fees from credit card revenue. Fees are subtracted and deposited into the bank account of the software provider on a transaction basis, while the remaining balance is disbursed into the merchant’s account.
  • It’s automated. Distribution of royalties or commissions between parties is automated, saving time, effort, and improving the software provider and client experience.
  • It’s streamlined. Merchants can offset interchange and other operational costs associated with payment acceptance and have those fees deposited into a designated bank account to streamline reconciliation.
Put Paya’s Flexible Funding Solution to Work for Your Organization

Software providers and clients look to Paya to deliver the flexible funding solution for their unique environments. Whether your business model requires single or multiple disbursements to sub-merchants or other parties, our technology simplifies merchant pricing, is franchise friendly and facilitates white-label payments and frictionless boarding.

Paya understands our clients’ business needs in the industries they serve. Our expertise underpins our ability to build and deliver comprehensive payment solutions that enhance customer experiences and outcomes. With more than 25 years of industry experience and 2,000+ industry partners, Paya is the leader in delivering simpler, more efficient, and deeply integrated payment solutions. Learn more about our how our flexible funding solutions can benefit your organization.