A Guide to Merchant of Record
Learn why partnering with a Merchant of Record
is more important than you might realize.
1
Table of contents
2
Introduction
3
What is a Merchant of Record?
6
Who benefits from a Merchant of Record?
9
The benefits of partnering with an Merchant of Record
11
How does a Merchant of Record actually work?
13
What a Merchant of Record does for clients
16
Comparing costs: Stripe vs Lemon Squeezy fees
18
Choosing a Merchant of Record and Lemon Squeezy
Meet the author. This MoR guide was created by JR
Farr, CEO and Co-Founder of Lemon Squeezy — a
global payments and Merchant of Record platform.
lemonsqueezy.com
Introduction
2
Introduction
Most SaaS companies are breaking international tax laws without even
knowing. If that has you breaking out in a cold sweat, you’re not alone.
When you’re building a product, you’re excited about putting it out there,
getting new customers, and making it the best product it can be. You’re not
thinking about boring tax regulations in a country on the other side of the
world. But ignoring legal etiquette can leave you in a sticky situation.
Here’s the thing: when you sell products online, there are two ways you can
take payment:
1. Through a hosted gateway - A hosted gateway acts as a third-party and
takes payment through your website. It absorbs the risk of being the MoR–but
here’s the catch: it’ll cost you.
2. Via a non-hosted method - Alternatively, you can be the payment
processor for your website. But this means you will be the MoR–here’s the
catch: you need to comply with the relevant laws in the countries you’re
selling your product (which, if it’s digital in any capacity, will probably be a lot
of countries). If you sell digital products to a global audience, chances are you’ll benefit
from an MoR. This guide will outline exactly what that means and how a
simple partnership can change your business.
3
Part one
What is a Merchant
of Record?
What is a Merchant of Record?
What exactly is a Merchant of Record?
A merchant of record is a legal entity
that sells goods or services to the end
customer. It handles all payments and
absorbs tax and legal liabilities for each
transaction.
In short, a merchant of record handles
your online payments, tax collection, tax
remittance, tax compliance, fraud
prevention, and liability. Basically, it
stops you from breaking international
tax laws like all those other SaaS
brands.
The key things an MoR does for you
The great thing about MoR entities is they process all payments as well as
take on the liability for those transactions. This includes:
Registering, filing, and paying taxes in each country
Collecting overall tax and VAT
Handling refunds and chargebacks
Preventing fraud
Managing PCI compliance
This means you don’t have to handle these activities in your own location or
any location that you sell in.
4
What is a Merchant of Record?
5
Who can be a merchant of record?
1. Companies - You can be your own MoR, but this means you’re responsible
for processing all payments and taking on all liabilities for those transactions
regardless of where you’re selling your products.
2. Third-party MoR - Alternatively, you can outsource the work of an MoR to
a third-party company that will process payments and becomes liable for
ensuring you’re meeting tax and payment regulations in each market.
What is the difference between a merchant of
record and a payment service provider?
Merchant of record? Seller of record? Payment service provider (PSP)? Do all
these buzzwords refer to the same thing? In short, no.
An MoR handles the entire order process from start to finish and takes
on all related liabilities in whichever markets you choose to sell in.
A payment service provider just handles the transaction part. They make sure
money is successfully taken from a buyer and deposited in your bank
account. Nothing more, nothing less. Finally, you might also have seen the phrase “seller of record” doing the
rounds, which is a term more closely related to an MoR. It’s essentially the
legal entity referred to and identified as the seller of a product.
6
Part two
Who benefits from a Merchant
of Record?
Who benefits from a Merchant of Record?
7
Some businesses are better suited to an MoR than others because they either
have a global audience by default or because they sell products that have
different rules and regulations in different parts of the world. Here are the
types of brands that might benefit the most from partnering directly with an
MoR:
SaaS Brands
Software as a service companies tend to have a global audience since their
product primarily lives online and can be easily accessed by anyone and
everyone. This can make payments, billing and taxes tricky with a global
audience. An MoR helps streamline payments and ensure the right taxes are
assigned to the right users.
eCommerce brands
Globalization has made it possible for ecommerce brands to sell across
borders. While this means they can reach a much bigger audience, it also
means they’re selling across state lines or internationally without local bank
accounts and other official entities. An MoR makes sure the brand is paying
the right taxes and adhering to the right rules in the countries its customers
are from.
Brands selling digital products
Digital products, including ebooks, whitepapers, workshops, and courses can
target anyone, anywhere. On top of this, different countries have different
rules for paying taxes on digital downloads, which can get complicated
quickly without an MoR to streamline payments and taxes.
Most brands that serve an international audience will benefit in some way
from an MoR–even if it’s simply to display the local currency and payment
options for customers in different parts of the world.
Who benefits from a Merchant of Record?
Why you should partner with a Merchant of Record
When you are the MoR, you are liable for every single payment. You have to
resolve any issues that crop up and take on financial responsibilities like:
Maintaining a merchant account
Negotiating processing fees
Making sure you’re compliant with PCI-DSS standards
Maintaining compliance with local payment laws
Managing tax calculations
Managing refunds and chargebacks
It’s a lot, and it takes time away from the stuff you enjoy, like creating an
amazing product and serving your customers.
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9
Part three
The benefits of
partnering with a
Merchant of Record
The benefits of partnering with a Merchant of Record
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Ultimately there are countless reasons why someone would partner with a
Merchant of Record. Here are some of the most compelling and important
benefits that come when working with a Merchant of Record ...
Keep control of your products
Maintain full control over your business without the tax hassle. You remain in
control of your products, website, emails, brand, terms, and privacy policy.
Accept immediate payments
Immediately accept payments legally. Take payments from audience and get
paid quickly wherever your customers are in the world.
Handle customers from anywhere
Attract users from all over the world without worry: Create a slick customer
experience for customers wherever they live.
Accept global currencies
Show prices in a user’s local currency: Build trust with international customers
by showing prices in their local currency and offering their preferred payment
methods.
Prevent fraud
Sleep easy with built-in fraud prevention: Reduce the amount of fraud by
quickly identifying potential scammers.
Stay ahead of rule changes
Stay on top of constantly changing rules. Tax regulations change often, and
it’s near-on impossible to stay on top of the changes happening in different
countries.
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Part four
How does a
Merchant of Record
actually work?
12
How does a Merchant of Record actually work?
1
A new order is placed
on your product
2
Merchant of Record takes care of
the transaction and compliance.
3
+$45.00
Global tax
VAT
Refunds
Chargeback
handling
Fraud
Prevention
PCI Compliance
Your payout is sent
JPMORGAN **** 3145
+$42.25
How does a Merchant of Record work?
When you partner with an MoR, the MoR takes on the reseller role. This
means two transactions occur during each sale:
One transaction between the MoR and the customer.
One transaction between your company and the MoR.
When the transaction is complete, the MoR’s name will appear on the
consumer’s credit card statement. During the transaction, the MoR will
identify where a customer is making the purchase and automatically collect
any taxes due as part of the sale.
13
Part five
What a Merchant of Record does
for clients
What a Merchant of Record does for clients
14
An MoR handles everything payment related, including sales tax and VAT in
multiple different countries. It dramatically reduces the stress (and cost) of
needing an accountant in every single market you sell in. Here are some of
the more granular things you can expect an MoR to do:
Sets up merchant accounts
Imagine having to set up a brand new bank account in every new location you
reach just so you can collect payment in the local currency. Sure, one or two
countries would be fine, but what if it’s three, five, 10, or even 20 different
countries? It would quickly become a nightmare. An MoR takes control of
setting up bank accounts in the countries where your customers are so you
don’t have to.
Ensures you’re compliant
Likewise, it can become incredibly tedious and time-consuming to research
tax laws and compliance in every country you sell in. An MoR manages
payment security and ensures you’re data and payment compliant in the
locations you’re selling.
Jurisdiction Registration
Every country has different sales tax thresholds you need to track before
registering in those jurisdictions. You are required to register your legal entity
and begin calculating, collecting, and remitting taxes in those jurisdictions. An
MoR registers in each respective jurisdiction you serve to manage merchant
accounts, payments, and tax remittance.
What a Merchant of Record does for clients
15
Converts currencies
Manually converting payments into local currencies can be a major headache
(not to mention the exchange rate is constantly fluctuating so it can change
on a daily basis). An MoR provides your customers with pricing in their local
currencies and handles any necessary conversions so everyone feels
comfortable paying in a currency they’re familiar with.
Negotiates payment processor fees
Payment processing fees vary from country to country. Again, it can be a
headache figuring out who owes what and tacking it onto the end total. An
MoR manages any fees related to credit and debit card payments in the
countries you serve.
Handles disputes and refunds
Disputes and refunds are a part of business. They’re not the most fun part of
business, but they are a dead cert. Save time by partnering with an MoR that
can manage any payment disputes, refunds, and chargebacks.
Calculates sales tax
While your local accountant can help you figure out how much tax you owe in
your own country, it’s a different story for other countries.
An MoR works out how much sales tax you owe in the countries you
serve, and files your taxes in those places for you.
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Part seven
Comparing costs:
Stripe vs Lemon
Squeezy fee
breakdown
Comparing costs: Stripe vs Lemon Squeezy fee breakdown
17
Stripe’s fee breakdown seems pretty simple on the surface. It charges 2.9% +
30 cents per successful card charge… or does it? Not always. If you’re a SaaS brand charging for subscriptions, you activate
“Stripe Billing” (all subscriptions created in your Stripe account are subject to
a charge by Stripe Billing) which tacks on additional fees of anywhere
between 0.5% and 0.8% per transaction.
Plus if you use any common Stripe features you’ll incur additional costs:
1.5% for international card
0.8% on recurring charges.
0.4% chargeback protection.
0.5% on every tax calculation.
7¢ per transaction for fraud protection.
$4 for failed ACH direct debit transactions
$15 per disputed transaction on issued cards.
$15 per disputed ACH direct debit transaction.
This can mean effective rates of over 9% with Stripe for true global coverage.
At Lemon Squeezy, our fees are 5% of each transaction + 50¢, which comes
in a lot cheaper than Stripe’s actual fees in most areas, when you take into
account Stripe Billing and the additional costs for global coverage. Even better, we take on all of the tax liability, which Stripe doesn’t. Suddenly
the difference between the original 3.7% Stripe fee and our 5% doesn’t seem
so bad, right?
18
Part eight
Choosing a
Merchant of Record
and Lemon Squeezy
Choosing a Merchant of Record and Lemon Squeezy
19
Tired of being held back by tax regulations and ever-changing compliance
laws? We get you. At Lemon Squeezy, we’re all about eliminating payment
stress so you can succeed. We want to help you focus on doing more of what you’re good at: creating and
selling awesome products. So let us take the hassle out of global taxes
(boring!) and help more people access your greatness. With Lemon Squeezy, you can immediately accept payments and get handson support for everything else you need. Here’s a quick overview of what you
get when you partner with Lemon Squeezy as your trusty MoR:
16 different payment methods (including PayPal)
Support with 95 different currencies
Charge one-time payments
Turn your products into revenue-generating subscriptions
Offer free trials to a global market
A whole lot more!
All this works right out of the box. No code. No Setup. No Headaches. No
monthly fees.
Just add your products, and start selling — easy peasy.
Get started today →