Experiences with payment providers that act as a Merchant of record

[random_username]

I'm figuring out a payment provider to use. I can't use Stripe or Paypal, because they complicated my tax obligations by a lot, and I have to deal with that then. So I'm researching payment provider that handles payment processing, acts as a merchant of record and handles VAT stuff. My Tax accountant recommended checking out FastSpring and Paddle.
Does anyone have any other recommendation to check out?
Is anyone willing to share their experiences and recommendations, good or bad?
I'm specifically interested in experiences regarding taxes and merchant of record functionality, and how smoothly that functions.

Thanks in advance everyone.

 

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[circleme]

I'm aware of those three:

• Paddle
• Lemonsqueezy
• Gumroad

I'm sure that there are many more, but those three are quite popular. Almost all of them focus on digital product/SaaS/subscription sales, but I don't see any reason to not use them for different things, such as physical ecom-products. They handle the payment part + the VAT part. The VAT is automatically calculated based on the users country.

I'm currently using gumroad, but I don't think it's a potent solution if you need it for checkout only. For checkout only, I would go the Paddle/Lemonsqueezy route.

 

[MJ DeMarco]

The problem with these is you are not the merchant of record, and you typically get paid once a month.

My company isn't a bank that floats money -- which is what you become when using them.

 

[StrikingViper69]

How did stripe and PayPal complicate your tax arrangements?

 

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[Tau Ceti]

I use Paddle and I am happy with them (I am not employed or affiliated with them in any other way).

I agree that using an MOR is not the best solution but it beats having to declare your sales tax in a dozens of different countries at the same time.

Maybe once my business is making a 100K/month consistently then I will swap to Stripe as it provides greater control but I prefer at this stage to spend my time working on the business and closing deals instead of doing taxes.

Just my 2 cents.

 

[random_username]

The problem with these is you are not the merchant of record, and you typically get paid once a month.

How did stripe and PayPal complicate your tax arrangements?

I'm just trying to get something out there so I can start doing stuff with digital products I want to sell (B2C). I want someone else to be the Merchant of the record because I want to offload tax liability from myself, save time and resources. I literally want to start selling a Blender plugin, and then a desktop application, and iterate. But the whole tax thing complicates everything. Not to mention the frustration.

If I roll my own payment processing I have to:
- Handle VAT in EU separately via OSS
- Handle Sales taxes in USA somehow
- I don't even know what to do for other countries
- Setup new register with which I accept payments legally, which in turn obliges me to do some other stuff which costs time and money
- Setup fiscalisation and either write my own code for fiscalising invoices or implement integration with some accounting API, then handle all those invoices with accountants

Merchant of record providers like Paddle sidestep all those issues. At least according to all accountants I've talked to.

Main problem is that I contacted 10 accountants, all referred from someone else. 6 responded, 5 won't touch with a stick this OSS accounting. One and only company who will deal with it charges 300+€/m and I would have to turn from sole proprietorship to LLC first. I'm from a small EU country and 300€ is a decent amount of money monthly. Forming LLCs cost time and money, and I'm simply sick from dealing with all this shit. It's a bunch of steps I have to do to even start. If I was sure that this will start selling I would do all those things. But I don't. I just want to start accepting payments somehow and start selling and see what happens. If things start selling, I can always do those steps. Gotta start somewhere first. And this is the fastest solution I found so I can start selling something this week.

My company isn't a bank that floats money -- which is what you become when using them.

I'm sorry, I've read the sentence 5 times and still don't understand what were you trying to say here. Are you implying that their business model is not getting a percentange of every transaction, but something else?

I use Paddle and I am happy with them (I am not employed or affiliated with them in any other way).

I agree that using an MOR is not the best solution but it beats having to declare your sales tax in a dozens of different countries at the same time.

Maybe once my business is making a 100K/month consistently then I will swap to Stripe as it provides greater control but I prefer at this stage to spend my time working on the business and closing deals instead of doing taxes.

Just my 2 cents.

This is precisely my thinking.

I'm aware of those three:

• Paddle
• Lemonsqueezy
• Gumroad

I'm sure that there are many more, but those three are quite popular. Almost all of them focus on digital product/SaaS/subscription sales, but I don't see any reason to not use them for different things, such as physical ecom-products. They handle the payment part + the VAT part. The VAT is automatically calculated based on the users country.

I'm currently using gumroad, but I don't think it's a potent solution if you need it for checkout only. For checkout only, I would go the Paddle/Lemonsqueezy route.

I wanted to use Gumroad initially, but they don't handle sales tax worldwide, my accountants don't know what to do in other situation. I will check out Lemonsqueezy, thank you!

 

[StrikingViper69]

I'm just trying to get something out there so I can start doing stuff with digital products I want to sell (B2C). I want someone else to be the Merchant of the record because I want to offload tax liability from myself, save time and resources. I literally want to start selling a Blender plugin, and then a desktop application, and iterate. But the whole tax thing complicates everything. Not to mention the frustration.

If I roll my own payment processing I have to:
- Handle VAT in EU separately via OSS
- Handle Sales taxes in USA somehow
- I don't even know what to do for other countries
- Setup new register with which I accept payments legally, which in turn obliges me to do some other stuff which costs time and money
- Setup fiscalisation and either write my own code for fiscalising invoices or implement integration with some accounting API, then handle all those invoices with accountants

Merchant of record providers like Paddle sidestep all those issues. At least according to all accountants I've talked to.

Main problem is that I contacted 10 accountants, all referred from someone else. 6 responded, 5 won't touch with a stick this OSS accounting. One and only company who will deal with it charges 300+€/m and I would have to turn from sole proprietorship to LLC first. I'm from a small EU country and 300€ is a decent amount of money monthly. Forming LLCs cost time and money, and I'm simply sick from dealing with all this shit. It's a bunch of steps I have to do to even start. If I was sure that this will start selling I would do all those things. But I don't. I just want to start accepting payments somehow and start selling and see what happens. If things start selling, I can always do those steps. Gotta start somewhere first. And this is the fastest solution I found so I can start selling something this week.

I'm sorry, I've read the sentence 5 times and still don't understand what were you trying to say here. Are you implying that their business model is not getting a percentange of every transaction, but something else?

This is precisely my thinking.


I wanted to use Gumroad initially, but they don't handle sales tax worldwide, my accountants don't know what to do in other situation. I will check out Lemonsqueezy, thank you!

How many sales are you making? Whats your revenue at the moment?

 

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[Tau Ceti]

For anyone who is also looking at payment solution, you will most likely ask yourself the same question as OP.

If you decide to go with Stripe, remember that with greater control comes greater responsibility. If you have too many fraudulent payments, you can be banned, if you have too many disputes you can be banned.

It will be up to you to declare the VAT amounts to the different countries properly, Stripe will notify you when you have to do so but the won't help you with paying what you owe and won't help you register with each tax office in each different country should you need to do so.

If you have a dispute, Stripe will not help you fight it, in fact from their point of view it is better to force you to settle the dispute by making you pay back the money + dispute fee than get into a long fight with your customer even when you have proof that someone abused the dispute system.

If you go with Paddle, you will have less control. You will get paid once a month instead of having daily payouts like Stripe does. Their checkout experience is not the greatest either (it's not buggy, it juts looks a bit dated), the API access is fairly limited although I hear Paddle and LS are stepping up their game.

Finally most importantly, the users who buy your product will not be your customers. They will be the customers of the MOR and you will become a supplier to the MOR.

So the direct link between you and your customer is not present. That is why the MOR can take on the liability of reporting the VAT to all the tax agencies.

That also means that when there is a dispute related to a payment, the MOR will help you fight it because They are the ones who are technically providing the service.

My honest take is this, if you are just starting out and want to keep moving fast, then go with a MOR but if your business is mature and bringing in some serious cash each month, then maybe you are better off using Stripe and then paying an accounting firm to sort out your VAT payments.

 

[Tau Ceti]

I'm sorry, I've read the sentence 5 times and still don't understand what were you trying to say here. Are you implying that their business model is not getting a percentange of every transaction, but something else?

What MJ meant I think is that since you only get paid once a month with an MOR, you basically lose the ability to use your cash straightaway.

Stripe lets you do daily payouts, so you could get your revenue in your bank account very quickly.

With that money, you can invest it, live off of it, pay wages of your employees, or whatever.

When you use an a MOR, since they only pay you once a month, from that point of view, you could interpret it as you loaning money to the MOR for 30 days without earning any interest in return hence the line : My company isn't a bank that floats money -- which is what you become when using them.

 

[Cameraman]

I'm figuring out a payment provider to use. I can't use Stripe or Paypal, because they complicated my tax obligations by a lot, and I have to deal with that then. So I'm researching payment provider that handles payment processing, acts as a merchant of record and handles VAT stuff. My Tax accountant recommended checking out FastSpring and Paddle.
Does anyone have any other recommendation to check out?
Is anyone willing to share their experiences and recommendations, good or bad?
I'm specifically interested in experiences regarding taxes and merchant of record functionality, and how smoothly that functions.

Thanks in advance everyone.

Digital product tax can be a bit of a nightmare, and very few people seem to comply with the law.

For anyone not aware, if you sell digital products to customers in the EU, you are liable for VAT, no matter where you are based. This used to apply to any digital product sold, but there is a lower limit these days, but I think it's only something like EUR10,000 per year. If you earn more than that, you're liable and need to submit VAT returns to each EU country (this is an incredibly painful experience).

Finding an accountant who is aware of this, never mind understands it, can be a challenge. Worse still, many other countries and even States have followed the EU's lead and have begun charging digital tax.

The advantage of the Merchant of Record is that they take on the digital tax liability rather than you and then they handle the filing of the digital tax. They then pay you the balance less their fee and you are still liable for the other taxes that you pay on profits.

Which service provider is best really comes down to which products you are selling. In my experience

Paddle is good and cheap but takes a bit of programming to implement. It also lacks a shopping cart, so it's better for higher-value ticket items rather than multiple sales. It seems to be designed for selling software but I've been able to use it for digital books and courses.

Teachable also acts as a merchant of record but watch out for their fees. I've used them for a long time and found the way they change service levels and pricing structures mid-contract terrible. They are very convenient and used to offer an excellent service. The problems I've experienced with changing service levels and restrictions to offerings mid-contract came about after they were sold to investors. They do offer a good product that's easy to use and sell through though.

STRIP - I've used the regular STRIP service, but when I investigated their Merchant service I found I still had a lot of work to do in filing regular tax returns. Unless that's changed, it's not worth it.

If you find a better solution I'm all ears.

 

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[random_username]

For anyone who is also looking at payment solution, you will most likely ask yourself the same question as OP.

If you decide to go with Stripe, remember that with greater control comes greater responsibility. If you have too many fraudulent payments, you can be banned, if you have too many disputes you can be banned.

It will be up to you to declare the VAT amounts to the different countries properly, Stripe will notify you when you have to do so but the won't help you with paying what you owe and won't help you register with each tax office in each different country should you need to do so.

If you have a dispute, Stripe will not help you fight it, in fact from their point of view it is better to force you to settle the dispute by making you pay back the money + dispute fee than get into a long fight with your customer even when you have proof that someone abused the dispute system.

If you go with Paddle, you will have less control. You will get paid once a month instead of having daily payouts like Stripe does. Their checkout experience is not the greatest either (it's not buggy, it juts looks a bit dated), the API access is fairly limited although I hear Paddle and LS are stepping up their game.

Finally most importantly, the users who buy your product will not be your customers. They will be the customers of the MOR and you will become a supplier to the MOR.

So the direct link between you and your customer is not present. That is why the MOR can take on the liability of reporting the VAT to all the tax agencies.

That also means that when there is a dispute related to a payment, the MOR will help you fight it because They are the ones who are technically providing the service.

My honest take is this, if you are just starting out and want to keep moving fast, then go with a MOR but if your business is mature and bringing in some serious cash each month, then maybe you are better off using Stripe and then paying an accounting firm to sort out your VAT payments.

I completely agree with everything. Thank you for taking the time to write out these posts.

I'm going to sell software for a 20-30€ ticket range. I did research yesterday, read all the docs and ran the numbers, and decided on Paddle as well. My last two finalists were Paddle and Lemonsqueezy, but Paddle can pay out in Euros in Eurozone, while Lemonsqueezy is only USD payout. That is a difference of additional 1.5% fee on payout. I've looked at Fastspring and 2checkout as well, Fastspring has "contact sales" button instead of pricing page, and 2checkout seems acquired by someone, so they are both probably not a good choice for a small business. I'm biased to Paddle and Lemonsqueezy since they have normal documentation that makes sense to me as a developer.

5% + 50c seems reasonable as a fee for the service they provide, which turns out effectively ~6.5-7.5%. Stripe is effectively between 2.5% and 4.5% depending on the ticket price and which card for payment is used. But when I factor in concrete accounting expense numbers, Paddle is cheaper until I get to 6-7k MRR. And that's without calculating the time and opportunity cost of dealing with the taxes, accounting, chargebacks, implementing all this stuff etc. I'm sure there will be comments about how that's too much, but it is what it is.

Digital product tax can be a bit of a nightmare, and very few people seem to comply with the law.

For anyone not aware, if you sell digital products to customers in the EU, you are liable for VAT, no matter where you are based. This used to apply to any digital product sold, but there is a lower limit these days, but I think it's only something like EUR10,000 per year. If you earn more than that, you're liable and need to submit VAT returns to each EU country (this is an incredibly painful experience).

Finding an accountant who is aware of this, never mind understands it, can be a challenge. Worse still, many other countries and even States have followed the EU's lead and have begun charging digital tax.

The advantage of the Merchant of Record is that they take on the digital tax liability rather than you and then they handle the filing of the digital tax. They then pay you the balance less their fee and you are still liable for the other taxes that you pay on profits.

I think this is really important to note. That's was my conclusion as well, this shit is too complicated to understand. Finding an accountant that wants to do this is not easy, and when you find them, they cost a decent amount of money.

 

[Cameraman]

I completely agree with everything. Thank you for taking the time to write out these posts.

I'm going to sell software for a 20-30€ ticket range. I did research yesterday, read all the docs and ran the numbers, and decided on Paddle as well. My last two finalists were Paddle and Lemonsqueezy, but Paddle can pay out in Euros in Eurozone, while Lemonsqueezy is only USD payout. That is a difference of additional 1.5% fee on payout. I've looked at Fastspring and 2checkout as well, Fastspring has "contact sales" button instead of pricing page, and 2checkout seems acquired by someone, so they are both probably not a good choice for a small business. I'm biased to Paddle and Lemonsqueezy since they have normal documentation that makes sense to me as a developer.

5% + 50c seems reasonable as a fee for the service they provide, which turns out effectively ~6.5-7.5%. Stripe is effectively between 2.5% and 4.5% depending on the ticket price and which card for payment is used. But when I factor in concrete accounting expense numbers, Paddle is cheaper until I get to 6-7k MRR. And that's without calculating the time and opportunity cost of dealing with the taxes, accounting, chargebacks, implementing all this stuff etc. I'm sure there will be comments about how that's too much, but it is what it is.

I think this is really important to note. That's was my conclusion as well, this shit is too complicated to understand. Finding an accountant that wants to do this is not easy, and when you find them, they cost a decent amount of money.

If you know how to code, go with the Paddle API. You can easily change it later if you want to, and you only pay per transaction. I also found their team helpful when I needed to contact them.

You might also want to investigate whether your country has a one-stop shop for digital tax reporting. I used to use this in the UK when we were in the EU, but it got canned when we left. Submitting all the figures still took work, but it was only around an hour a quarter for the EU.

 

[Tau Ceti]

I completely agree with everything. Thank you for taking the time to write out these posts.

I'm going to sell software for a 20-30€ ticket range. I did research yesterday, read all the docs and ran the numbers, and decided on Paddle as well. My last two finalists were Paddle and Lemonsqueezy, but Paddle can pay out in Euros in Eurozone, while Lemonsqueezy is only USD payout. That is a difference of additional 1.5% fee on payout. I've looked at Fastspring and 2checkout as well, Fastspring has "contact sales" button instead of pricing page, and 2checkout seems acquired by someone, so they are both probably not a good choice for a small business. I'm biased to Paddle and Lemonsqueezy since they have normal documentation that makes sense to me as a developer.

5% + 50c seems reasonable as a fee for the service they provide, which turns out effectively ~6.5-7.5%. Stripe is effectively between 2.5% and 4.5% depending on the ticket price and which card for payment is used. But when I factor in concrete accounting expense numbers, Paddle is cheaper until I get to 6-7k MRR. And that's without calculating the time and opportunity cost of dealing with the taxes, accounting, chargebacks, implementing all this stuff etc. I'm sure there will be comments about how that's too much, but it is what it is.

I think this is really important to note. That's was my conclusion as well, this shit is too complicated to understand. Finding an accountant that wants to do this is not easy, and when you find them, they cost a decent amount of money.

Also please note that Paddle is not simply a payment provider in the form of MOR.

They also help you by handling customers support on your behalf sometimes, they help you recover lost revenue, they have very good reporting software to help you understand which ones of your customers are about to churn.

Their own customer support is pretty good and I always manage to talk to a human if I need to.

I guess what I mean is that the extra percent you pay in fees is worth it for me at this stage. YMMV

 

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