What is an Merchant of Record? (And why should you care?) -

Software firms can market their product to consumers all over the world, right? So why not market your products globally?

Anyone who does business with international clients will be honest with you. It's not that simple.

• Do you require a translation of your site's content?
• Are you willing to accept their version of their currency?
• Do you have a basic understanding of local privacy and tax regulations?

We recently spoke to one of the software entrepreneurs in the Caribbean that was struggling with this issue.

His customers were impressed with his offerings His company also had been growing fast. "But my country is home to only a little over a million inhabitants," he told us. "If I would like to expand my business I must expand into other areas ."

He realized the possibility of selling his software to foreign countries would cause array of tax, payments processing, and issues with compliance.

"That's the reason I require a merchant of record," he explained.

In this article we'll discuss what a "merchant of record" is, and the reasons having one makes it simpler for software firms to expand globally.

What Is a Merchant of Record?

A merchant of record (MoR) is the company that sells goods or services to a customer. Businesses can have the merchant of record. However, you can also outsource this task to organizations that sell goods or services for the benefit of businesses and, as a result, take on the liability related to the sale.

A merchant of record lets you forget about the tax and compliance problems that come with accepting payment all over the world- so you can focus only on the thing you excel at making great products.

1. Software firms often have difficulty with Foundational Billing Tasks

Even before they consider the possibility of selling to a different country, many software companies struggle with the foundational tasks related to billing, for example:

• Decreasing payment failure rates.
• Managing and maintaining connections with merchant banks and payment processors.
• Negotiating payment processor fees.
• Handling payment disputes, refunds, and chargebacks.
• Filing, calculating, and paying software sales tax.

Some of this work may be done for you by your accountant or processor, however they're likely not doing everything: like helping you decrease customer churn and issuing refunds.

The chances are that (unless you're already working using a MoR) you're either doing the work in-house or perhaps not doing it at all.

If you are selling items to customers in a different nation, things become more complicated.

2. Sales Tax and VAT are usually based on the Buyer's location for digital Goods

When selling software or digital goods, VAT and sales tax is almost always calculated based on the location of the client , not the location where you conduct business.

(This is different from professional services, which usually are taxed according to the place where the service was performed rather than the location of the customer. )

For example, let's imagine that you're selling software (or the digital equivalent of a product) and you choose an easy payment processor (like Stripe or PayPal).

If that's the case, if you have enough clients in Canada that you meet the Canadian threshold for tax filing, then you have to track, file tax returns and pay taxes to Canada regardless of your location or where the headquarter of your company.

When you're the merchant of record, unless you're within Canada, you'll outsource the sales tax, VAT as well as many compliance responsibilities to your MoR, who will track, file, and collect taxes on your behalf throughout Canada and in all the countries in which your customers reside instead of you doing that on your own.

If you multiplie the Canada example by the number of countries that your clients are located in it is easy to see why a lot of software companies choose a MoR over basic payment processing as they grow globally.

With a merchant of record, you can grow your business faster at a lower stress level and cost from accountants and tax experts.

3. The rules are constantly changing all the Time

The requirements for doing cross-border business vary depending on the country you're in and the amount of business you're doing there, the structure of your business as well as a myriad of different factors. However, the most commonly used steps are:

• Learning the preferred payment methods of a given area.
• Processing currency conversions while taking payments.
• Understanding tax regulations for foreign countries and whether your products are subject to value-added tax (VAT).
• Monitoring and handling fraud This is more common in international payment.

This is work that you perform per country, which means if you have a lot of customers in ten different nations, you have 10 sets of local taxes to determine -- a timely and costly process.

This is that is the reason why it's so beneficial to utilize a merchant of record service for when you're ready to expand internationally.

4. The Merchant of Record Simplifies Your Financial Operations

You didn't start the company as a software developer to spend your days figuring out tax regulations that are complex across the globe. You started it because you had a great idea for a new product and you were able to build it.

A merchant of record lets you focus on what you do best creating your product.

The MoR acquires the software from youand after which it sells it to the customer you have. Instead of working directly with clients and financial service providers, you interact through one single entitythe MoR.

Your customers will still browse your site to purchase software or update subscriptions, but when they're ready to check out the program, they'll purchase it at the MoR.

You'll get a receipt from the MoR, and the MoR will be the name that appears on their credit or bank card statement. This is the way the MoR is deemed to be the responsible party for the sale.

5. A of Record Merchant of Record Is Cost-Effective

If you're paying lawyers or an accountant to work out the tax regulations and other business laws in each country where your customers live, those costs quickly add up. Not to mention localizing the payment system you use and ensuring your site accepts the preferred payment method in the country in which you operate.

An MoR (like ) already knows about local taxes, payment processors and. This makes it the most cost-effective method to receive payments and pay taxes to a worldwide customer base.

6. With a Merchant of Record, You Can Go Global Immediately

The process of localizing your currency and checkout experience is a process which can take several years for those who create the capabilities to do so on their own.

As a MoR is all set and ready to go, when you are the customer of an international MoR, your currencies, payment methods of choice as well as the experience at checkout are customized to meet the needs of your clients right beginning.

7. An Merchant of Record Helps You Stay Compliant

Each country has its individual privacy and sales regulations, and they're always changing. This means you'll need to have a lawyer on retainer to be aware of ever-changing global tax regulations in the event that you're dealing with compliance on your own.

Once again, a MoR will do this work for you, avoiding costly costs and legal fees.

What is a Merchant of Record Different from a Payment Service Provider?

A payment service provider (PSP) like PayPal or iDeal, is a platform which acts as a substitute payment method that is based on debit, cash or credit cards. It's likely that you're already working with one or two PSPs -- whichever are the most well-known in your area or that of your clients.

A PSP simply handles the processing of payments, not anything else involved in an order process like sales or VAT taxes, or the dispute of payment.

A record-keeping merchant On the other hand takes care of everything.

Some PSPs such as Stripe support multiple currenciesthis is an important step towards being able to support customers from multiple nations or even regions. But various PSPs are popular in different places. For example, in Sweden, Swish is far more popular than PayPal or Stripe for mobile payments.

And while PSPs have the capacity to take payments in different countries however, they're not accountable for aiding you to calculate taxes for a specific country.