What is a Merchant of Record (MoR)?

A Merchant of Record (MoR) is the legal entity that sells goods or services to customers and processes payments on behalf of another business. The MoR handles payment processing, tax collection, compliance with local regulations, and assumes liability for transactions.

Think of it as outsourced commerce infrastructure. Instead of setting up payment processing, tax compliance, and fraud management yourself, you use a MoR that already has this infrastructure in place. The MoR becomes the seller of record, while you remain the provider of the product or service.

MoRs are common in digital commerce—SaaS companies, digital products, online courses. They're less relevant for service businesses or contractor management, which is why Kontrable doesn't use a MoR model for contractor payments.

How MoR works

The MoR model is straightforward for digital sales. A customer wants to buy your software or digital product. Instead of processing the payment yourself, the MoR handles the transaction. The customer pays the MoR, the MoR collects applicable taxes, and the MoR remits the net amount to you (minus their fee).

The MoR appears on the customer's credit card statement and invoice. They're the legal seller. They handle chargebacks, refunds, and customer payment disputes. They ensure compliance with payment regulations (PCI DSS) and tax laws (VAT, sales tax) in every jurisdiction where you sell.

You focus on building and marketing your product. The MoR handles the complexity of global commerce: multi-currency pricing, tax calculation, payment method localization, fraud detection, and regulatory compliance.

MoR vs payment processor vs EOR

MoR becomes the legal seller, handling payment processing, tax compliance, and transaction liability. They own the customer relationship from a payment perspective.

Payment Processor (like Stripe) processes payments but you remain the seller. You handle tax compliance, refunds, and chargebacks. The processor just moves money.

EOR employs workers on your behalf. Completely different domain—employment, not commerce. The confusion arises because both use "of Record" terminology.

When MoR makes sense

MoRs are valuable for digital businesses selling globally. You're selling SaaS, digital products, or online courses to customers in many countries. You want to avoid the complexity of multi-jurisdiction tax compliance. You want to outsource payment processing, fraud management, and chargeback handling.

Classic MoR use case: a small SaaS company selling to customers in 50 countries. Instead of registering for VAT in the EU, sales tax in the U.S., and GST in Australia, they use a MoR. The MoR handles all tax compliance, and the company focuses on building software.

MoRs are less relevant for service businesses, B2B contracts, or contractor payments. These transactions don't involve consumer sales or complex tax compliance. Using a MoR would add unnecessary cost and complexity.

Costs and trade-offs

MoR services typically charge 3-7% of revenue, depending on transaction volume and services included. For a company with $1M annual revenue, expect $30,000-70,000 in MoR fees. This is significantly more expensive than direct payment processing (2.9% + $0.30/transaction).

The trade-off is simplicity and compliance. You avoid the cost and complexity of multi-jurisdiction tax registration, payment method integration, and fraud management. For small teams selling globally, this can be worth the premium.

But you lose control and customer relationship. The MoR owns the transaction. They appear on credit card statements. They handle refunds and disputes. You're dependent on their systems and support. Switching MoRs requires migrating your entire payment infrastructure.

Why Kontrable avoids MoR

Kontrable doesn't use a Merchant of Record model for contractor payments. We avoid funds custody entirely. You pay contractors directly via your own Wise, PayPal, or Payoneer accounts. We track payments and provide documentation, but we never hold or process your money.

This approach keeps things simple and transparent. You maintain direct relationships with contractors. You control payment timing and methods. You see exactly where your money goes. There's no middleman holding funds or taking a cut of every transaction.

The MoR model makes sense for consumer sales with complex tax compliance. It doesn't make sense for B2B contractor payments, where relationships are direct, transactions are straightforward, and tax compliance is the contractor's responsibility.

Popular MoR providers

If you're selling digital products globally and need a MoR, several providers specialize in this space. Paddle and FastSpring are popular for SaaS and digital products. Lemon Squeezy focuses on creators and indie developers. Stripe Tax provides tax compliance without full MoR services.

Each provider has different pricing, features, and geographic coverage. Evaluate based on your transaction volume, target markets, and need for features like subscription management, affiliate programs, or multi-currency pricing.

For most service businesses and contractor management scenarios, you don't need a MoR. Direct payment processing with Stripe or PayPal, combined with contractor management software, is simpler and cheaper.

Common questions

Do I need a MoR for contractor payments? No. MoRs are for selling products/services to customers, not paying contractors. For contractor payments, use direct payment methods (Wise, PayPal, Payoneer) and contractor management software.

Can I switch MoR providers? Yes, but it's complex. You need to migrate payment infrastructure, update customer billing, and potentially re-register for tax compliance. Plan for 1-3 months of transition work.

Does using a MoR affect my revenue recognition? Yes. Because the MoR is the legal seller, revenue recognition can be more complex. Consult your accountant about how MoR transactions should be recorded.

What's the difference between MoR and reseller? A MoR processes payments on your behalf but you remain the product provider. A reseller buys your product and sells it themselves, owning the entire customer relationship.

The bottom line

Merchant of Record services are valuable for digital businesses selling globally. They handle payment processing, tax compliance, and transaction liability, letting you focus on building products. The cost is 3-7% of revenue, which can be worth it for small teams avoiding multi-jurisdiction compliance.

But MoRs aren't relevant for contractor management or B2B services. These transactions don't involve consumer sales or complex tax compliance. Direct payment methods with contractor management software are simpler, cheaper, and give you more control.

Know your use case. If you're selling digital products to consumers globally, a MoR makes sense. If you're paying contractors or providing B2B services, skip the MoR and use direct payment methods.