Merchant of Record: The Complete Guide for SaaS Founders

If you’re building a SaaS product, chances are you’ve signed up for Stripe, added a checkout form, and started charging customers. But soon, you start hearing terms like VAT, GST, chargebacks, and tax compliance, and things get complicated.

That’s when the term “Merchant of Record” (MoR) starts to appear.

If you sell globally, the MoR model can either simplify your operations or cause unexpected issues. Most payment providers don’t clearly explain this. Stripe and Paddle might seem like similar checkout options, but legally and operationally, they’re completely different.

In this post, we’ll clearly explain what a Merchant of Record is, how it affects your business, and whether you should use a platform like Paddle or Lemon Squeezy instead of Stripe. We’ll cover tax, legal matters, compliance, and operational tradeoffs in simple terms, so you understand everything.

What Is a Merchant of Record?

A Merchant of Record is the legal entity selling your product or service to the customer.

They handle:

Payment collection
Invoice issuing
Collecting and paying sales tax/VAT/GST
Managing fraud, disputes, and chargebacks
Following local tax and financial laws
Keeping payment flows legal and clear

In simple terms, it’s the name on your customer’s credit card statement and invoice, and the entity responsible for the transaction.

If you are the Merchant of Record, you’re the seller. If you use a platform like Paddle or Lemon Squeezy, they are the seller, and you’re just a supplier. This distinction decides who deals with fraud, taxes, and any government issues.

Being clear about this from the start helps you avoid unexpected responsibilities later on.

Who Can Be the Merchant of Record?

There are three main options:

You (via Stripe, Braintree, etc.) You directly collect payments. You are the MoR. This gives you control over pricing and user experience, but it means you manage all compliance and legal risks.
A platform like Paddle or Lemon Squeezy They collect payments, issue invoices, and manage compliance. You just receive payments. These services handle billing, taxes, and legal responsibilities.
A marketplace like the App Store or Shopify The marketplace sells to the customer and takes a percentage, often limiting your pricing and branding options. These platforms are suitable for sellers within their systems.

For most SaaS companies, the real choice is between option #1 (like Stripe, where you’re the Merchant of Record) or option #2 (offloading responsibility to a platform like Paddle). These two approaches offer different levels of control, complexity, and compliance. Your choice affects how your product operates and grows.

Using Stripe: You Are the Merchant of Record

Stripe gives you powerful tools, but you handle everything:

Registering for VAT in the EU, GST in Australia, and sales tax in various U.S. states
Issuing invoices that follow each country’s rules
Paying taxes in each region
Managing disputes, chargebacks, and refunds
Responsibility for tax or fraud issues

It’s flexible, but it’s your responsibility. This works well if you have a finance team or mainly U.S. customers.

Stripe has started offering limited Merchant of Record services for SaaS through its Stripe Managed Payments for SaaS, which manages tax compliance. Under this program, Stripe acts as the MoR for specific transaction types or regions, handling tax collection and remittance while maintaining your brand on invoices—distinct from their standard payment processing where you remain the MoR. But it’s not available to everyone and is rolling out slowly.

👉 Read our detailed explanation here.

Using Paddle, Lemon Squeezy, or Gumroad: They Are the Merchant of Record

⚠️ Important Note on Lemon Squeezy: Lemon Squeezy was acquired by Stripe in 2023. Since then, the platform has faced integration challenges and reduced feature development. As of 2025, many of its features are being consolidated into Stripe’s broader Merchant of Record offerings. If considering Lemon Squeezy, evaluate whether Stripe’s new integrated MoR services or established alternatives like Paddle better suit your needs.

These platforms:

Collect payments and issue invoices
Handle VAT, GST, and sales tax for you
Manage fraud, refunds, disputes, and chargebacks
Pay you net revenue like a vendor
Save you from international tax registration and audits

These platforms help solo founders, early startups, or anyone wanting fast, compliant payment systems. Many smaller businesses use them to avoid difficult legal processes.

But there are tradeoffs.

Pros of Using a Merchant of Record Platform

Using a Merchant of Record platform removes significant risks and burdens, allowing you to focus on your product and growth:

1. Global Tax Compliance No need to register for taxes in multiple regions. The platform handles this.

2. Compliant Invoicing Platforms automatically provide invoices that meet local standards, helping you close more deals, especially with larger businesses.

3. Chargeback and Fraud Management Platforms manage disputes, reducing risks and costs for your business.

4. Simpler Legal Operations The platform is legally responsible, protecting your company from audits and legal issues in many countries.

5. Quick Setup Platforms include essential services, so you can sell faster.

6. Improved Customer Trust Invoices with proper tax information increase customer trust, especially internationally.

7. Additional SaaS Tools Platforms may include subscription management and licensing systems suitable for early-stage SaaS.

Cons and Limitations

Using a Merchant of Record has important tradeoffs:

1. Higher Fees Typically 5 to 10%, higher than Stripe’s fees. Costs add up quickly with many transactions.

2. No Ownership of Transactions Your company’s name doesn’t appear on invoices or statements, which may confuse customers or affect branding.

3. Limited Checkout Control Less flexibility for pricing, billing, and checkout customization. Not ideal for products needing complex pricing.

4. Limited Integrations Fewer options to integrate with analytics or CRM tools, making metric tracking difficult.

5. Slower Payments Delayed or monthly payouts can affect your cash flow.

6. Difficulty Scaling Complex SaaS Complex models like multi-user accounts or enterprise billing are harder to manage. For example, if you need highly variable usage-based billing with custom discounting tiers for enterprise clients, or seat-based pricing with department-level billing splits, MoR platforms may lack the flexibility you need.

These tradeoffs matter greatly as your SaaS grows.

Comparing Pricing and Fees

Here’s a clear comparison of some common payment providers:

Platform	Merchant of Record?	Fees
Stripe	No	~2.9% + $0.30 per transaction
Paddle	Yes	5% + $0.50 per transaction
Lemon Squeezy	Yes	5% flat, discounts at volume
Gumroad	Yes	10% on free, lower on paid

👉 Read the full comparison here

Merchant of Record services usually cost more per transaction compared to Stripe. Despite the higher fees, these services significantly reduce the workload related to handling taxes, preparing accounts, filing reports, and managing legal compliance. For many businesses, especially smaller teams or solo founders, this tradeoff is worthwhile due to the time and resources saved.

Sales Tax, VAT, and Global Compliance

Tax compliance is the main reason to use a Merchant of Record.

When selling software in different countries, you might need to:

Register for sales tax in several U.S. states
Register for VAT in every EU country you sell to
Register for GST in countries like Australia or India
File monthly or quarterly tax returns in these countries
Pay taxes according to local regulations

These rules change quickly. Each country has its own requirements for invoicing, currency, and customer details. Mistakes can cause audits, fines, or even frozen accounts.

Merchant of Record services handle these taxes. They already follow the rules in most countries.

Legal, Accounting, and Financial Implications

If you use Stripe (you are Merchant of Record):

You record total sales as revenue
You handle refunds and disputes yourself
You may need to show tax compliance if raising investment or selling your business
Accounting can become complicated, especially for yearly payments

If a service like Paddle is your Merchant of Record:

You record only the net amount you receive
They issue all invoices, not you
Accounting is simpler, but you have less visibility and control
Tracking details about individual customers can be difficult

This can affect fundraising, selling your company, or reporting to investors.

Handling Refunds and Disputes

If you use Stripe:

You deal directly with customers, banks, and refunds
You pay fees for every chargeback (often between $15 and $25)
Your account risk increases with every dispute

If you use a Merchant of Record platform:

They manage refunds and disputes
Many platforms handle dispute fees for you
Your account isn’t at risk because of disputes or chargebacks

Should You Use a Merchant of Record?

Ask these questions:

Are you selling internationally?
Can your team handle global tax compliance?
Is detailed control over billing important?
Do you have complex pricing (like seats or usage-based)?
Do your customers care who sends invoices?
Do you need quick customization or easier tax handling?

If your business is new or small, a Merchant of Record platform can save a lot of time and avoid problems.

If your SaaS is larger, complicated, or has internal finance help, Stripe may be a better fit.

The Cost of Switching Later

Changing your payment provider later can be difficult.

For example, moving from Paddle to Stripe or the other way around is challenging. Migrating customer subscriptions can lead to problems with payments, invoices, and service interruptions.

Common migration problems include:

Rebuilding checkout and subscription upgrade processes
Managing billing cycles and refunds correctly
Keeping customer histories and invoices
Confusing customers due to different invoicing details
Adjusting reporting, analytics, and billing systems

Switching isn’t impossible, but it’s usually complicated.

Choosing carefully from the start can save trouble later. Changing your provider can become a major headache.

Final Thoughts

Choosing who acts as your Merchant of Record affects taxes, legal responsibilities, invoices, and international growth.

Deciding between handling payments yourself (with Stripe) or using a provider (like Paddle) isn’t just about payment processing. It affects many parts of your business.

There’s no universal solution. What suits a small SaaS startup might not suit a bigger, growing company with many customers.

Take your time, ask important questions, and treat this decision seriously. Payments and billing are a core part of your product and business strategy.