Software Growth

MoR (Merchant of record)

A merchant of record is the legal seller on a sale. It collects and remits sales tax and VAT and handles chargebacks, unlike a payment processor.

The merchant of record (MoR) is the entity that legally sells your product to the customer. When someone buys through a MoR, the MoR takes the payment, appears on the card statement, calculates and pays the sales tax and VAT, issues the invoice and deals with refunds and chargebacks. You become a supplier to the MoR, and it pays you what is left after tax and fees.

Paddle and Lemon Squeezy are the best-known MoR platforms for software. Stripe, by default, is not a MoR. It is a payment processor, and you are the seller.

MoR vs payment processor

Paddle's own comparison is that a payment service provider handles the transaction, whereas a MoR handles the whole order process and takes on the liabilities that come with it. Paddle says that as a MoR it takes responsibility for everything from processing payments to sales tax compliance (source). The practical split looks like this:

  • Payment processor (Stripe). You are the seller. You register for VAT, GST and sales tax where thresholds require it, file returns, and handle disputes. You control checkout, pricing and the customer relationship, and the fees are typically lower.
  • Merchant of record (Paddle, Lemon Squeezy). The MoR is the seller. It calculates, collects and remits taxes in its markets, carries chargeback and fraud liability, and invoices the customer. You do not register for tax in dozens of countries. The fee is higher because it bundles that work.

Paddle's support documentation states the same idea in simple terms: it acts as the reseller and is the seller on record, taking over the collection and payment of VAT and tax instead of you (source).

How to compare the cost

Say you sell $20,000 of subscriptions a month to buyers around the world. With a MoR at a higher bundled fee you pay more per sale, but you spend nothing on tax registrations, filings and accountants. With Stripe, the headline fee is lower, but you or your accountant must register, file and keep records in each jurisdiction where you owe tax. Compare the fee difference to what compliance would cost you in money and attention. Check each provider's current pricing page, since rates change.

Where a MoR is the better choice

  • You are a solo founder or small team selling globally from day one.
  • You do not want to learn EU VAT and US state sales tax.
  • You sell digital products with simple pricing and checkout needs.

Where Stripe is the better choice

  • You need control over checkout, invoicing, quotes and complex billing such as heavy metered usage.
  • Most of your customers are in one country where compliance is straightforward.
  • Your volume is large enough that the fee gap outweighs the compliance work, and you can hire help.

Things to check

  • Payouts and timing. The MoR holds funds before paying you.
  • Restricted products. MoRs set rules about what they will sell and review accounts.
  • Switching cost. Moving existing subscribers from one platform to another is hard, because payment details do not always transfer. Pick carefully early.
  • Reporting. Your revenue recognition and reported numbers depend on the platform's reports.

Many bootstrapped founders start with a MoR to ship without a tax project, then consider moving to Stripe once volume justifies a finance setup. The decision is a trade of fees against time, so make it with real numbers.

Sources

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