Merchant Of Record — Why It’s Not Always The Best Choice

Most creators don't want to deal with tax offices. But is using Merchant of Record services like Gumroad, Paddle, or Lemon Squeezy really the holy grail? Is it worth higher fees and churn in return for less headaches for a founder? You will be surprised once you dig a bit deeper.

This article is for informational purposes only and does not constitute tax or legal advice. Neither me nor Easytools accepts any liability for decisions made based on this information.

Selling digital products globally

Once you get the feeling of selling products to a global audience, there's nothing that beats this. You wake up to sales from Brazil, US, Canada, France and more — it's the best proof that what you create gives people value. This is all great up until you realize there's taxes to be paid worldwide. As we explain in detail in our Guide, those are to be paid to the countries your customers are in, and this is not an easy task.

The solution?

For many, using a Merchant of Record (MoR) like Gumroad, Paddle or Lemon Squeezy seems like a perfect solution. However, it's mostly clever marketing, and the model has significant drawbacks.

In reality, small creators don't need to pay taxes until they reach certain revenue thresholds in each country. Ironically, when using MoRs, you end up paying ALL applicable taxes because the MoRs themselves exceed these thresholds – meaning you're paying taxes you wouldn't have had to pay if you sold directly. More on this below.

What is a Merchant of Record?

A Merchant of Record (MoR) is the legal entity responsible for processing customer payments and taking on associated financial and legal obligations. This includes managing sales tax collection, payment processing, compliance, refunds, and customer payment disputes.

In short — a Merchant of Record (MoR) sells your products on their behalf, and they are the ones who have the direct relationship with the customer. On the invoice, you'll see the MoR's company details, not yours. Legally, customers are buying from them, not from you. This is why the MoR is responsible for handling all taxes, invoices, and related administrative requirements.

This sounds great, right? Well, let’s unpack it a bit more.

Merchant of Record platform risk

You have to understand that you give full control over your money to the MoR. Money paid for your products first goes to them, and then to you, usually after some delay — OR you have to pay extra for an instant withdrawal (as with Gumroad). This means you're not in direct control of your revenue stream.

In fact, the platform risk is bigger than you expect.

At the time of writing this article, one of the first and once-largest MoRs is falling apart. Digital River appears to have been insolvent for months, withholding creators' revenue for at least 3 months. And this isn't an isolated incident.

Guess what other MoR is doing?

An opportunity indeed! But be prepared, because the model is exactly the same, so you might “be covered” many times in the future. In fact, Paddle had similar issues – once they stopped paying us and many other merchants for months. Despite countless emails, I received only automated-sounding responses without any real explanation or resolution. I eventually got my money, but only after deciding to leave the platform entirely.

Another case is Flurly, a marketplace that acted as a Merchant of Record for sellers on their platform. Due to a single merchant's misbehavior, Stripe shut down the entire platform and issued a $425,000 fine.

Merchant of Record bears full responsibility for all transactions on their platform. If their screening fails to catch prohibited activity — or if just one seller breaks the rules — every creator using the platform faces potential consequences.

This is the part of Flurly farewell message to their users:

The most relevant reason that we’re shutting down is the merchant of record model is too risky for both sellers and the merchant of record operator. Sellers bare the risk of platform shutdown as seen in the example of Flurly and Stripe. Furthermore, it became increasingly clear that the merchant of record model primarily appeals to small scale sellers or businesses with questionable or high risk business models. The recent changes in Stripe’s risk behavior has caused us to experience issues with keeping Stripe accounts live.

While researching backlinks to platforms like Gumroad, I discovered numerous products being sold that violate various jurisdictions' laws. These listings are readily discoverable through Google. Given MoRs' legal responsibility for all transactions, this widespread presence of prohibited items creates significant risk for all platform users.

This illustrates critical risk of the MoR model – your business can be impacted by the actions of other sellers using the same platform. For most of the businesses, this means imminent death or at least serious trouble.

Paddle and Lemon Squeezy — not for creators?

These risks have led to important consequences for creators and digital products sold through MoRs. It's telling that both Paddle and Lemon Squeezy market their services primarily for 'Software companies' and 'SaaS'.

This makes perfect sense – screening SaaS businesses is much more straightforward than monitoring infoproducts, where scams are easier to execute and merchants frequently launch new products. To properly manage their risk, MoRs must verify not just the company behind each product, but also thoroughly review the content of every single product on their platform.

I know though, that they don’t really like infoproducts. My personal experience with selling infoproducts through MoRs has been:

• Multiple infoproducts were rejected from platforms outright
• When products were accepted, the review process dragged on for months
• One long-standing account where I'd successfully sold courses for years was blocked

This real-world experience demonstrates how MoRs often treat creator content as high-risk (rightfully so), even when there's a proven track record of legitimate sales.And here's another hidden risk: using an MoR means you could be impacted by laws that would never affect you in your own legal system – issues completely beyond your control or influence. Of course, this can happen with Stripe too. But at least then you're a direct party to the relationship and can exercise your rights.

Gumroad case — you might as well not be covered

Many creators selling through Gumroad were shocked when the platform announced that they were only becoming a Merchant of Record in January 2025 - after years of operating. Creators had been convinced that Gumroad was handling all their sales and taxes, when this wasn't actually the case (at least not fully). This revelation has serious implications: any creator who sold through Gumroad before 2025 might have unknown tax obligations they haven't accounted for.

Has Gumroad claimed they're operating as MoR and handling taxes before? I don't think so! Of course they were not stating this openly, but it seems that many founders had false impression that they did.

When I requested that popular MoRs demonstrate their tax compliance procedures and explain exactly how they handle their tax liabilities, I received zero response. Try asking them yourself. I suspect in many cases they simply outsource to a tax office, lack established representation in various countries, and pay limited attention to what's actually being sold on their platform.

The real issue is not whether MoRs operate as they should – it's simply the fact that they take on legal responsibility. If you want to outsource this responsibility, sure, that's what MoRs offer. But here's the catch: this same model attracts dishonest sellers looking to dodge responsibility, which makes the risk even greater for legitimate creators who are responsible for everyone.

MoR can take +30% of what you earn but you know this, right?

Let’s talk about the costs. It’s understandable that MoR is charging you more, as they have to establish this robust system for fraud protection, scammers, establishing legal representatives in each country, filling to different tax system etc. But is it really something you want to pay for? Is this robust legal machine something that’s fitted to creator or founder, who is relatively small (even if this means millions in revenue?).The first non-obvious fact about MoR is that they will pay ALL available taxes for you, not only the ones you have to pay otherwise, when acting on your own. As we discussed in the Guide, there are thresholds that make you not have to pay taxes nor register in various jurisdictions. E.g. you need to annually sell more than $500k only to state California to ever worry about taxes there.

Do you think it’s the same for Merchant of Record?

Here's the shocking reality that no one talks about: Because MoRs serve thousands of sellers under one account, they've already exceeded tax thresholds everywhere. This means they must charge tax on your very first dollar of sales! Your customers could end up paying up to 27% more for your products – when you might not have needed to charge tax at all if selling directly. This hidden cost is absolutely insane, yet it's rarely discussed.

Think MoRs only charge their advertised rate like 5% + 50¢ per transaction? That's just the beginning! Let's break down the real costs:

Base Fees:

• Initial platform fee (e.g., Gumroad's 10% flat fee)
• Payment processing (2.9% + 30¢)

Hidden Charges:

• Non-US card fee (+1.5% with Lemon Squeezy, Polar, or Gumroad)
• International payout fees (+2.5% + $2.50 with Lemon Squeezy)
• PayPal payout fee (+1.5% with Gumroad)

This all adds up to 8-14% in fees alone – and we haven't even talked about taxes yet! Then add another 20% in taxes that you might not even need to charge if selling directly.

A few notes about these fees:

• MoRs likely get volume discounts on payment processing but still charge you full rate
• Each platform has their own mix of hidden fees
• The real cost is often buried in multiple fee layers

This can give a whopping 30% that you give up or more. And don’t be blinded that the tax is transparent. It’s not — it’s making your products more expensive so it means lower conversions.

Meanwhile, on Lemon Squeezy pricing page:

Don't be evil? 😈

Why are most founders and creators on X terrified about taking any path other than MoR? Because they've been subjected to marketing that plays on their fears. Some companies have taken their marketing to concerning extremes – like Paddle with their 'Tax agony index,' where the message is crystal clear: Hand it all off to Paddle, or accept pain, or go to jail. This fear-based marketing has effectively brainwashed many into believing MoR is their only safe option.

Meanwhile, I've never heard a single story of a creator or founder being imprisoned – or even bothered by tax authorities – for not paying VAT in some remote country. While large corporations need to maintain compliance, even they often don't fully meet every requirement.

Look at the evidence: many companies have sold for hundreds of millions without having perfect tax compliance. Only recently have companies like Framer and other well-funded startups, who've earned millions for years, started implementing proper tax compliance procedures.

This isn't to encourage non-compliance, but to put the fear-mongering in perspective: the reality simply doesn't match the doomsday scenarios painted by MoR marketing.

MoR locks you in their platform

This all stems directly from the core MoR model we discussed – they sell under their name and use their own payment processor account (like Stripe). The legal implication is clear: the customers are technically 'theirs.' While you might be able to prove the business relationship to VCs or investors (though I've had deals discounted because of this), try proving it to authorities, especially in a different legal system. The legal reality of not truly 'owning' your customer relationships creates real business risks.

Here's a hidden GDPR pitfall: In Europe, you need explicit consent to send emails to customers. When using an MoR, these consents are legally granted to the MoR (the seller of record), not to you. This means your customer email list becomes legally unusable if you leave the platform – you can't take those marketing permissions with you. Your carefully built customer relationships are effectively trapped with the MoR.

This is just one example of the legal complications. Most MoRs operate under US law while often failing to fully comply with European regulations. Another clear example: some like Gumroad allow post-purchase invoice editing, which is in general not allowed in the EU.

The real problems surface when you try to leave an MoR. Beyond just email consents, they legally own all customer data – including credit card details and subscription information. Migrating away from an MoR usually means losing a substantial portion of your clients and revenue, as you can't simply transfer these payment relationships to another platform. Your business is effectively held hostage by the platform.

MoR churn is real, CUX fails where it matters mostCustomer confusion becomes a bigger problem with MoRs, since their name – not yours – appears on all invoices and bank statements. This makes it harder for customers to connect payments with your service, leading to unnecessary cancellations.

But the problems run deeper. Companies like Gumroad and Paddle have largely replaced their front-line support with AI and chatbots. When customers need help, they're met with generic, hard-to-navigate help websites that only increase their frustration. Even basic requests become ordeals – I personally gave up trying to get Lemon Squeezy's support to help with invoice corrections after multiple unanswered messages.The impact is threefold:

1. Customers can't easily recognize what they're paying for
2. Support issues go unresolved or take excessive time
3. Simple administrative tasks become major headaches

The sales process is where customer trust is built, and it simply cannot be outsourced to bots. You won't see it directly, but customers who struggle with refunds and billing will silently disappear – never returning to buy from you again!

If anyone claims otherwise, it's pure sarcasm. But this also perfectly illustrates how little control you have over a process where your brand and trust are absolutely crucial.

Is there any pros to Merchant of Record model?

Yes, using a Merchant of Record means less hassle since another company takes on liability for your products and tax obligations. The core appeal is simple: they manage sales tax calculations, payments, and global tax filing so you don't have to deal with these administrative headaches. But this convenience comes at a steep price – it's literally the only real benefit I can identify, and the downsides far outweigh it in most cases.

Can Merchant of Record model work when done right?

Yes. At Easytools we prove it works in selected cases. But this is not our default model nor we think it should be. We can act as Merchant of Record for our sellers but only rarely see the point in it. Usually this boils down to these use-cases:

• Very small creators who haven’t yet established they company and can’t handle their legal affairs. Our mission is to help anyone start earning on digital products. This means we want to support creators at this stage, too. I believe it’s a good idea to sell with Gumroad or Lemon Squeezy at this stage, too. You’re not yet confident whether it’s going to work and setting up a proper company is an unnecessary cost at this step.
• Companies selling products that require additional licenses in their jurisdiction. As US law is pretty permitting, there might be less of a hustle to organize selling such products within the Merchant of Record model, provided you being accepted.
• Big organizations who have to stay fully compliant and want to mitigate the risk. As you grow past certain size, compliance starts to be very expensive. Unfortunately, global taxes are complicated, and you have to deal with local governments at some point, too. In this case it might be a good idea to use MoR and mitigate the risk as well as cost of establishing a huge legal machine.

As a result, Easytools main model is NOT MoR, and it works perfectly well for 99% of our creators.

In the 1% of cases of our publishing model (similar to MoR), we are very selective for who we accept (mainly for their benefit). We have to do a proper KYC, check the products, and we operate in slightly different model than a simple “agent” license, acting more as a publisher of your creator work. We also make sure that we secure you adequately - usually set up separate Stripe account and make sure that all the consents are in place in case you decide to leave the platform.

Like I mentioned, we treat this model as a last resort, complementary, not primary. Our general advice is to set up your own Stripe account. This lets you build real value in your company, maintain direct relationships with customers, negotiate better fees as you grow, and take full responsibility for your own business. It's simply too risky to hand over control of these crucial aspects most of the time.

So how to make this work?

I can't stay fully objective here, as at Easytools we've built services that help you earn while building your company's value. But if I were just selling these services, I wouldn't advertise against MoR – quite the opposite, since we take an additional 5% from creators in our publishing model.

So why would I want to cut my revenue?

My main goal is to educate you and make you aware of both sides of the coin. I've been swimming in this pond for over 20 years and sold products to over half a million customers. I've used most solutions available on the market, yet I decided to devote years to building an alternative that would be truly creator-friendly, being one myself. I feel MoR is just not the answer to all problems – in fact, it often creates more.

On Easytools we default to the model where you are responsible for your products and this is a good thing! We believe this helps us focus on serving creators who sell ethically and don't want to overpay for services. For most businesses what we offer should be the best solution.

It's based on:

• Your own Stripe account, where you build history and that you connect to Easytools
• No specific approval process, Easytools just works like a layer on top of Stripe
• In terms of taxes, Easytools gives you the right tools like threshold monitoring
• We will also issue invoices compliant to EU and global law, in different languages
• But we also have very unique features no other solutions offer, such as disabling countries with immediate tax liability or ones where you're close to reaching thresholds
• Also, we offer great network of trusted companies who can help you with registration, filing and remitting if needed, therefore taking away all the headache, the right way

Just go ahead and see how it works — there's no risk and no platform lock-in, as we operate on your Stripe account. All customers, subscriptions, invoices and contact details are yours. This means no contract nor obligations, you can switch anytime, to hundreds of solutions built on Stripe, including its native Checkout.

‍Try it yourself, create and setup Easytools account within minutes >>

‍And if you are curious how to set up taxes, and how it all works (both in Stripe and with Easytools), here’s an extensive workshop with all you need to know, including step-by-step instructions:

Conclusions

Like I said, as a founder of Easytools I can’t be fully objective, but there’s many more SaaS founders and creators who came to the same conclusions and support my case. For example, I recommend reading and listening to:

• Global Sales Tax Compliance and Remittance
• Nobody in SaaS Wants To Talk About This
• Super Fun Sales Tax (Part Deux)
• This would kill our company immediately

Using a Merchant of Record (MoR) seems like an easy solution for handling global sales and taxes, but the convenience comes at a steep cost. While MoRs handle tax compliance and payments, they create significant problems:

• You lose control over customer relationships and data
• Fees stack up through hidden charges
• Customers pay unnecessary taxes due to MoRs' global thresholds
• Support is often automated and inadequate
• Platform lock-in makes it hard to leave without losing customers
• Legal risks increase due to shared platform liability
• Customer confusion increases due to MoR branding on statements
• You lose direct ownership of customer consents and relationships

MoRs make sense in specific cases: very small creators just starting out, companies needing special licenses, or large organizations requiring full compliance.

For most creators, using your own Stripe account and proper tools gives you better control, lower costs, and helps build real business value without the downsides of the MoR model. This is exactly how Easytools works, and I encourage you to check it out.

I hope this will help you make better decisions for your business. Ultimately, I think we should take responsibility for our business and build value — I hope this article proves useful to you!

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Frequently asked Questions about Merchant of Record

[fs-toc-omit]1. Is Creem, Dodo Payments, Polar and other any different from classic MoR?

I don’t want to spoil the party, but the same concerns apply to newer MoR platforms like Creem, Dodo Payments, Polar and similar services – they operate under the same rules and make the same claims, they're just smaller now and might fly under regulatory radar more easily. Don't be fooled: this doesn't mean the risk is any smaller. In fact, smaller platforms might pose even greater risks due to less established compliance systems. Don’t get me wrong, I cheer them up and we probably have all the same problems, but I just think MoR shouldn’t be default model.

[fs-toc-omit]2. Do I need a Merchant of Record to sell digital products globally?

No, you don't necessarily need an MoR to sell digital products globally. Many successful creators use their own Stripe account combined with specialized tools like Easytools. Most countries have tax registration thresholds, meaning you don't need to register for taxes until you reach significant sales volumes in those jurisdictions.

[fs-toc-omit]3. What are the real costs of using a Merchant of Record?

‍The total cost is often much higher than advertised. Beyond the basic platform fee (usually 5-10%), you'll face:

• Payment processing fees (2.9% + 30¢)
• International payment surcharges (1.5%)
• Payout fees (1.5-2.5%)
• Mandatory tax collection even below thresholds (up to 27%)Total costs can sometimes exceed 30% of your revenue.

[fs-toc-omit]4. What happens to my customer data if I want to leave a Merchant of Record?

‍When leaving an MoR, you face significant challenges. You can't easily transfer:

• Customer payment information
• Subscription relationships
• Marketing consents (especially important in the EU)
• Customer communication historyThis often results in losing a substantial portion of your customer base when switching platforms.

[fs-toc-omit]5. Are there any legal risks when using a Merchant of Record?

‍Yes, there are several legal risks:

• Your business can be affected by other sellers' misconduct on the platform
• MoRs might not fully comply with international regulations
• You're subject to the MoR's legal jurisdiction and practices
• Customer disputes become more complicated due to the three-party relationship

[fs-toc-omit]6. When does it make sense to use a Merchant of Record?

‍MoR services are most appropriate for:

• Very small creators just starting out, usually with no company
• Companies needing special licenses if this makes sense for them
• Large organizations requiring full compliance
• Situations where simplicity outweighs cost and control

[fs-toc-omit]7. How do tax thresholds work with and without a Merchant of Record?

Without an MoR, you only need to register for tax in countries where you exceed their thresholds (e.g., €10,000 for EU VAT). With an MoR, you pay taxes on all sales because the MoR has already exceeded these thresholds globally. This means your customers often pay taxes they wouldn't have to pay if you sold directly.

[fs-toc-omit]8. How does using a Merchant of Record affect my company's valuation?

‍Using an MoR might impact your company's valuation through:

• Less direct ownership of customer relationships
• Reduced control over payment processing
• Limited ability to prove customer lifetime value
• Dependency on third-party platforms
• Potential difficulties in business relationship verification

Although it’s not always the case, I myself were in the situation when while selling my business it has been heavily discounted because I’ve been using MoR. Finally this led to me abandoning transaction. Of course buyers can understand and be happy with this model, however, this is an ammunition they can use in negotiations.

[fs-toc-omit]9. What are the most popular Merchant of Record platforms?

‍There's quite a few platforms operating full or limited versions of Merchant of Record, most of them located in the US, as Europe has much stricter laws regarding this setup, including financial oversight, anti-money laundering regulations, and more.

Popular solutions are:

• Gumroad — US-based platform for creators
• Paddle — UK-based, focused on SaaS
• FastSpring — US-based, enterprise focus
• Digital River — US-based, enterprise level
• Lemon Squeezy — US-based modern solution
• Teachable — for selling courses
• Whop — US-based Marketplace and community products
• Podia — US-based platform for courses
• Creem — US-based modern solution
• Buy Me a Coffee — US creator platform
• Payhip — UK-based platform
• E-junkie — US-based older solution
• Digistore24 — German-based platform
• 2Checkout (Verifone) — US-based global solution
• Dodo Payments — US modern solution

Alternative that removes problems of using MoR is:

• Easytools — operates on Stripe, with no lock-in and multiple creator tools for selling digital products, based in Europe, with invoicing and GDPR compliance

[fs-toc-omit]10. How is Easytools different from Merchant of Record platforms

The key difference is that Easytools works as a layer on top of your own Stripe account, meaning you maintain direct control of customer relationships, payments, and data while getting tools to handle tax thresholds and compliance requirements. Unlike MoR platforms, Easytools doesn't act as a middleman for most creators (though we do offer a publisher option for small creators). Instead, it's the only tool that helps manage taxes and reports with unique features that let you earn more while staying in control and avoiding excessive risk.

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