by Martin McNally
Director of Product Management, CCI

This is the time of year when waterfalls are at their peak. In many parts of the country, water is flowing fast and wide and it's a beautiful sight. As the water continues to move, there is a source and destination at each segment of its journey. The same model can be used for funding co-op/MDF programs in support of channel sales and marketing activity. This is becoming an evermore popular alternative to more traditional accrual-based funding models.

In this model, money transfers from a master funding account, to a regional account, the eventually to a partner's account upon Prior Approval (PA) or Claim transaction approval. These transfer are automated and are performed using a series of transfers and adjustments for impacted accounts-each with an audit trail assuring no unauthorized over expenditure of funds in the process. Depending upon your company structure, program business rules and partner landscape, interim holding accounts may be involved too. If so, funding is further divided, at each step, between holding accounts until it reaches a funding account. The waterfall approach allows funding to "flow" from the top down through your defined account hierarchy and ultimately to the partner.

Throughout the process, the partner does not know the funding account or its balance. The partner has its own account where available and projected balances are calculated based on accruals, adjustments, prior approval and claim transactions and payments.

Waterfall funding allows the funds to flow upstream too. If a PA is closed, voided, or expired, any remaining funds that have not been claimed are returned to the funding account.

This approach is best suited for more discretionary models, where a master fund is established but the actual distribution of funds to partners is managed on a localized (decentralized) basis. This tracking is important because it accounts for all distribution of funds (spend and unspent) and ties back to a master budget with accountability and controls each step of the way. Many companies are evolving to this model, either apart from or in addition to accrual-based models, as the latter is felt to be more entitlement-oriented by the partner. This "waterfall" method of distribution focuses the fund where the opportunities are needed most. However, care must be taken to assure the distribution is consistent with Robinson Patmann guidelines-here in the US anyway. But that would be a legal matter and a topic for another blog entry. Rest assured, though, that your legal team knows all about that, should you want to consider this funding model for your own progfram