How MLM Compliance Software Helps You Avoid Legal Trouble?

Section 5 of the Federal Trade Commission Act requires MLM businesses to follow its guidelines and prohibits any unfair or deceptive practices. Therefore, there’s no doubt that MLM businesses can’t afford to overlook compliance.

But isn’t ensuring MLM compliance becoming increasingly complex and time-consuming, yet errors still occur?

If it sounds relatable, you aren’t alone. Several MLM businesses face exactly the same, and one thing that can change this is switching to MLM software for compliance rather than manually handling the compliance obligations.

Now, the question arises, “There are several MLM software options in the market. So, which one should you choose?”

This guide answers that question for you by explaining the importance of MLM compliance software, how it will support you in your compliance journey, and how to choose the right one.

So, keep reading to gain insights delivered through experience.

Why Should You Use MLM Software for Compliance Management?

There are several reasons why one must use MLM software or network marketing software for compliance. And in this section, we are going to discuss all of these reasons in detail.

Stay Compliant With FTC and Industry Guidelines

It’s obvious that one would make efforts to ensure compliance with the FTC and industry guidelines. However, several compliance activities are nearly impossible without MLM Compliance software.

Let’s take the example of a business that has 500 distributors with different levels and downlines. Now, an MLM company decides to make the earnings claim manually. They count the payouts and distributor expenses to finalize and publish the details.

After a while, a distributor highlighted an error in their payout, which caused a ripple effect, and many of the payouts required corrections.

Though the corrections were made in payouts, the earnings claim was neglected. When the FTC conducted an audit, the earnings claim didn’t match the payouts, leading to scrutiny.

There can be many such instances where achieving compliance through manual efforts may lead to errors, whereas using network marketing software for compliance can save you trouble.

Tailor MLM Compliance to Region-Specific Needs

Your MLM company must be operating in multiple US states. In addition to the country-level laws, there are state-level laws and regulations that you need to follow.

If it’s operating in different countries, each country has its own rules to govern MLM compliance.

Therefore, your policies and procedures must be tailored to the region’s specific requirements.

Handling compliance manually for different states or countries could be unsustainable, as:

• The laws and regulations vary so much that a one-size-fits-all policy won’t work.

• Manually updating policy and assessing its impact across regions as per the amendments can be tricky.

• Without centralized automation, different teams or offices might follow inconsistent compliance practices.

• When operating in multiple jurisdictions, making manual efforts to comply with data privacy laws might lead to human errors.

• Hiring local legal experts for each market and managing manual compliance checks adds to operational costs.

• When the business grows to new countries and regions, manual compliance efforts can increase significantly and become unmanageable.

When you switch to an MLM compliance software, manual compliance troubles go out the window.

• Create multiple MLM policies as per the state or the country, and have a centralized governing system in place to ensure correct implementation and execution.

• Network marketing software for compliance accesses the policy changes and automatically aligns the compliance efforts accordingly.

• A centralized compliance platform keeps all teams on the same page with standardized workflows, documentation, and real-time oversight.

• It automates data management and privacy controls, reducing human errors and ensuring compliance with region-specific privacy laws like GDPR.

• Rather than hiring multiple local experts, the software automates the compliance check through its alert system.

• Better scalability as you can implement automation by cloning rules, workflows, and compliance checks, and tailor them to new regions or countries directly from the application.

Have Proof of Your MLM Compliance Efforts

When you perform MLM compliance manually, organizing proof of compliance practices comes with significant challenges.

• The documents would be scattered across multiple physical records and spreadsheets that are prone to loss or damage.

• This creates a fragmented audit trail, putting the MLM business’s compliant status at risk.

• It leaves the MLM business with a weaker hand when there’s a legal dispute.

So, how does MLM compliance software bring these issues to an end?

When you switch to MLM software for compliance, everything goes digital, hard spreadsheets become extinct, and the amount of paperwork gets reduced significantly.

Let us provide you with some examples.

First, when you need to ensure compliance, the MLM model must be sales-focused. So, if a distributor is only recruiting and not actively making sales, it can lead to non-compliance. Now, when you use network marketing software for compliance on your side, it automatically detects such non-compliant behavior and enables you to take action.

Similarly, the genealogy tree visualization helps you track payouts, recruits, and downlines, making it easier to detect abnormal growth patterns. These patterns remain hidden when performing compliance manually.

The MLM compliance software also helps you with your record-keeping requirements, such as member details, earnings information, and tax reports.

Strengthen Trust and Expand Your Distributor Network

Potential distributors do their research before joining an MLM business. After all, who would want to end up in a pyramid scheme and lose money?

They’ll examine the business, its practices, products, management, and compliance record as well before committing as a member. They’ll also communicate with the existing distributors to learn about payouts, downlines, etc.

Suppose payouts are not as per the compensation plan, and the business makes errors while aligning downlines with distributors. In that case, it can lead to distributor dissatisfaction, non-compliance, legal issues, and scrutiny.

When you have network marketing software by your side, it helps you stay compliant, which improves the distributor experience.

Key Ways of Using MLM Software for Compliance Help You Stay Compliant

So, now that you know why switching to MLM compliance management software is a green flag for your business growth, legal standing, and reputation, we’ll look into specific areas where MLM software can help you with compliance.

We created this section by taking the primary MLM compliance laws and regulations into consideration.

Track Distributors Purchase and Prevent Inventory Loading

Federal Trade Commission’s section 5 mandates that the distributor must make purchases only for retail sales and personal use. However, it becomes tricky to track why a purchase is taking place. They might also make purchases to qualify for the next rank or to secure a higher sales commission.

When you have an MLM Software in place, it helps keep an eye on a distributor’s purchases and respective retail sales taking place. If there’s a significant gap between these two, that indicates inventory loading.

According to a study by Pyramid Scheme Alert, to avoid FTC action for conducting a pyramid scheme, the “70% rule” (distributors must derive at least 70% of their income from retail sales to nondistributors) and (2) the “10-customer rule” (an Amway representative had to prove that he/she has made at least 10 retail sales each month) should be applied.

Let’s explain this with an example:

• A distributor purchased an inventory of 20 units for $1000.

• The software showed the retail sales of 10 units.

• This suggests that the distributor kept 10 units for themselves. This could be to fulfill the sales target, attain a reward, or achieve a rank.

• When this happens multiple times, it can have a negative impact, and the distributor might lose money. Ultimately, it’s counted as non-compliance.

• MLM software for compliance detects this gap between purchase and retail sales, and suggests that the MLM team take action and stop inventory loading.

Support Earnings Claim

It’s essential for MLM businesses to publicly release their distributors’ earnings to ensure compliance. Taking its importance into consideration, we have also given it a prominent place in our MLM compliance checklist.

However, you need evidence to support your earnings claims, and MLM software for compliance can provide you with assistance for that.

• Each distributor needs to submit their sales receipts to the software.

• They must also provide information regarding monthly expenses (traveling, hosting meetings, etc.)

• The network marketing application filters out the monthly and annual earnings for the top 1%, top 10%, and top 50% for every rank.

• Now, you need to present it in an earnings claims document and release it publicly. Network marketing compliance software makes the process so easy and straightforward that you can update it monthly without much effort.

Develop and Execute a Retail-Sales Focused Compensation Plan

MLM businesses must create a retail-sales-focused compensation plan where the commissions are tied to retail sales and not recruitment.

With MLM software for compliance, you can develop the compensation plan by:

• Defining the commissions

• Setting different bonus types

• Specifying what rewards distributors can earn

• Defining ranks/levels and eligibility criteria

Creating and executing a compensation plan manually might run smoothly at first. However, as the business expands, the number of distributors grows, downlines multiply, and tracking each aspect becomes challenging.

A manually drafted compensation plan might look compliant in theory, but in practice, certain situations can arise where it leans towards recruitment. Without proper tracking, these red flags may go unnoticed until an FTC audit uncovers them.

In contrast, direct selling compliance software can automatically monitor how the plan is executed, flagging any non-compliant patterns early on. This makes it easier to adjust and update the compensation plan proactively, ensuring it stays compliant as your business scales.

Accurate and Legitimate Payout to Members

The FTC places high importance on ensuring that MLM businesses make payouts to their distributors as per the agreed terms.

During an FTC audit, if the organization identifies that the payouts don’t align with what was agreed, whether in terms of amount, payment cycle, bonuses, etc., then it might lead to non-compliance.

Usually, it happens when the payouts are done manually or when the accounts department juggles between different applications: one for tracking the distributors' earnings, another for calculating commissions, and a third one for doing the payouts.

When you move to networking marketing compliance software, it puts all the pieces together, from tracking earnings to making payouts. Also, you can automate it as per the agreed payment cycle, so all payments are made on time.

Support System to Handle Distributor Issues

When there’s a support system to address distributor issues, it helps you stay compliant. The issues can be related to anything: the payment mechanism, the reward system, or other instances when distributors require your assistance.

If there’s no support system in place and the traditional email method is followed, there is a chance of missing requests that require your attention.

For instance,

• Incorrect payments

• Rank advancement errors

• Recruitment issues

Problems occur when such support requests are overlooked, which can result in non-compliance.

Now, you can also have dedicated software for handling support requests. But with MLM software for compliance that comes with a support system, things become much easier as you won’t need to move between two apps.

Helps You Conduct Agent Training

It’s essential to note that even when your agent conducts a non-compliant activity, your MLM business is held responsible. Therefore, MLM training is considered an essential step for compliance.

For that reason, you should go for MLM software that allows you to provide training to your distributors or integrates with other course creation and training tools.

The major advantage you get here is that after the distributor’s training is conducted, the information will be readily available in the MLM software. It provides a centralized view of your compliance efforts.

Fulfill Record Keeping Requirements

Record keeping acts as a shield against penalties. When your records are sound, no one can allege that the business is non-compliant.

Whenever an FTC audit takes place, you have the evidence of following all MLM compliance requirements. It also provides the FTC with an audit trail they can follow to check your MLM business’s compliance standing.

Now, which record-keeping requirements can MLM compliance software fulfill?

• Sales receipts to show that your business is retail-focused.

• Distributors’ earnings to support your earnings claims.

• Basic information of distributors to meet KYC requirements.

• Refund fulfillment details per your refund policy.

And many more.

Now, imagine keeping these details offline. A risky approach

What if they’re scattered across different digital platforms? Still not a good idea.

Now, what if you get every bit of detail on a single integrated app? That’s what your business deserves.

Keeps up with Changing Laws Automatically

Whether it’s a specific state law or Federal Trade Commission guidelines, they’ll keep getting amended to protect the MLM businesses that are functioning fairly, as well as distributors and customers.

So, when you have the support of MLM compliance software that keeps track of these amendments and provides tools to help you implement the necessary changes, your compliance process becomes faster and more reliable.

In case additional effort is required from your end, the application must keep you informed and provide support to stay compliant.

How to Choose the Right MLM Compliance Software

Out of all the MLM compliance software apps out there, which one should you choose?

To ensure that you go for the perfect one, we’ve defined some criteria. In this section, we’ll discuss those criteria and empower you to have the best MLM software for compliance on your side.

Must-Have Features

Every MLM business’s requirements are different, and so are the MLM compliance apps. The software that perfectly aligns with your requirements is the one.

There are some features that must be included in MLM compliance software, irrespective of your requirements. On top of that, you can look for additional features that align with what you specifically want.

Here are the must-have features on which you can’t compromise:

• Ability to select and develop a variety of compensation plans, so that you can track the downline and direct your compliance efforts better.

• Able to make payouts accurately as per the compensation plan.

• Payouts must be made on time as per the decided payment cycle.

• Features to conduct in-app distributors’ KYC.

• Should create sales and payouts reports to support earnings claims.

• Fulfill the record-keeping requirements required by the FTC.

On top of these basics, if the software has an alert system for suspicious activity, tools to track distributors’ conversations with customers, and automation to update the functioning as per the amendments, that’s the best pick.

Ability to Integrate with Other Tools

Even if the application is loaded with features, every network marketing compliance app has its limitations. And these limitations are countered through integrations.

There’ll be data coming in from different sources. For instance, if you use a different tool to record the distributors’ expenses. That data needs to be transferred to your MLM compliance software for further processing and creating an earnings claim document. If the integration isn’t possible, you’ll need to use another tool for this purpose, requiring more compliance efforts than necessary.

Similarly, you’ll need integration with tools that keep distributors’ conversation transcripts and other communication information.

By integrating with other tools, you’ll be able to create a 360-degree protection for compliance.

Allows Customization

Only a flexible network marketing compliance software is worth using. If there are predefined processes for performing compliance, they’ll only give you an easy start, but not help you in the long run.

Customization is necessary for several reasons:

• To align with laws and regulations for multiple countries and regions.

• To implement sector-specific compliance checks.

• To track the downline, reward plan, and distributors exactly as your compensation plan works.

Vendor Reputation

This is an obvious one, but it needs a mention for sure. After you validate the software yourself, it’s necessary to evaluate the vendor's reputation. To do that, you can

• Request the vendor to share the references.

• Check platforms such as Capterra and Trustpilot to check the vendor’s ratings and user reviews.

• Check social media and Google My Business to understand the public opinion of the vendor.

• Go through the awards and certifications received by the vendor.

Training and Customer Support Service

Training and customer support are key to making the best use of the application. Before deciding to move forward with an MLM compliance software, ensure that:

• Training on software features to improve compliance

• Assistance with migration from the previous MLM software

• Support in utilizing the customized tools

• Support for software–related doubts, issues, and required upgrades from time to time.

Network Marketing Software for Compliance: Know Global MLM Solution

Global MLM Software is one-of-a-kind MLM software for compliance.

First, it lets you create a sales-focused compensation plan where you can define different ranks, associated commissions, and milestones for additional bonuses.

With Global MLM, you can visualize the complete genealogy tree and its functioning. With that, it’s straightforward to detect suspicious earnings and take the required action.

When it comes to payouts, you can automate them at whatever frequency you want. You can set the payout conditions and align them with your compensation plan.

It’s really important to stick with what’s committed to distributors, and Global MLM’s payout system is exactly what's needed for that.

As you can check every individual’s earnings, it helps in preparing the earnings claim document without the guesswork.

Lastly, it allows you to integrate it into our LMS system, making training distribution easier than ever.

Conclusion

MLM businesses need to prioritize compliance more than ever. Regulations are becoming stricter, and scrutiny is increasing by the day. But when you operate within the boundaries of compliance, it saves your distributors and end customers from losing money.

Nowadays, it’s not only the business but also its agents, i.e., its distributors, who need to follow compliance practices. So, you need to implement, track, and improve these practices not only within the organization but also within your network.

And it’s best to do it with the support of MLM compliance software. The software that helps you stay compliant across every region you operate in, keeps proof of your compliance efforts, and helps you build a reputation.

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