Merchant of Record? What is it? The example of lemonsqueezy.com

Selling e-books, online courses, and other digital products often crosses national borders. As business expands into different jurisdictions, the formalities related to payment processing and taxes grow. The Merchant of Record (MoR) model has gained popularity among creators and SaaS companies as a way to offload some administrative responsibilities. In this article, we explain what a Merchant of Record is, how it works, its advantages and disadvantages, and the role played by the Lemon Squeezy platform in this model. At the end, we suggest how to settle transactions from lemonsqueezy.com in Poland and the role of the integration with Stripe and striptu.com.

What is a Merchant of Record

A Merchant of Record is the legal entity that sells goods or services directly to the customer. Lemon Squeezy's documentation explains that when making a purchase, the customer buys from the merchant, not from the actual product creator. The MoR's responsibilities include payment processing, collecting sales tax, handling refunds and chargebacks, and ensuring regulatory compliance (including PCI DSS). A TaxJar article confirms that the MoR is the entity bearing financial, legal, and compliance responsibility for the transaction; it works with banks, card networks, and tax authorities, and manages payment processing, compliance (PCI DSS, KYC/AML), and the calculation and remittance of indirect taxes.

A Polish article on Easy.Tools explains this concept in a local context: the MoR takes on the financial and legal obligations related to payment processing, including tax collection, regulatory compliance, refund handling, and dispute resolution. Importantly, the MoR sells the product in its own name, and the MoR's details appear on the invoice, not the creator's. The seller thus hands over tax, invoicing, and many administrative requirements to an external entity.

How the Merchant of Record model works

The MoR model comes down to the fact that in every transaction there are two links in the chain. Lemon Squeezy describes the process as follows: the customer initiates a purchase on the creator's page, but the payment is processed as a single transaction between the customer and the MoR. After completion, the MoR delivers the product to the customer and handles all post-sale obligations (refunds, compliance, tax settlements). A Paddle article adds that in reality, there are two transactions: one between the end customer and the MoR, and another between the MoR and the creator. On the customer's card statement, the merchant's name appears, and complaints are directed to the merchant.

Merchant of Record vs. Payment Service Provider (Stripe)

Many people confuse MoR with a payment service provider (PSP) such as Stripe. A PSP is an intermediary that facilitates the transfer of funds between customers' bank accounts and sellers. However, a PSP is not the seller in the legal sense and does not assume tax or legal obligations. As a result, an entrepreneur using a PSP must independently handle VAT registration, invoicing, and refund processing. The Dodo Payments blog points out that Stripe primarily serves as a payment gateway, requiring additional tools for subscriptions, taxes, or invoicing, and that tax management remains the seller's responsibility. Paddle emphasizes that the MoR takes on the entire obligation related to the transaction, while the PSP handles only payment processing.

Benefits and drawbacks of using a Merchant of Record

Benefits

- Tax and compliance automation. The MoR calculates, collects, and remits VAT/sales tax on behalf of the seller, so the creator does not need to know the complex regulations in every country. Lemon Squeezy emphasizes that using an MoR eliminates the administrative and tax burden of global sales.
- Payment and refund handling. The MoR is responsible for secure payment processing, PCI DSS compliance, and managing refunds and chargebacks. TaxJar notes that this saves companies time, which they can devote to product development.
- Multiple payment methods and currencies. Lemon Squeezy offers customers a wide selection of currencies and payment methods, which can increase conversion.
- Simpler international expansion. The MoR enables selling in countries where the seller does not have a local entity. Dodo Payments notes that the MoR unifies payments, subscriptions, and taxes in one package.

Drawbacks

- Higher costs and fees. Using an MoR comes with commissions higher than those of a PSP, as numerous comparisons highlight. The Easy.Tools article points out that you pay extra for tax handling, and fees can eat into margins.
- Loss of control over cash flow. A creator selling through an MoR receives revenue only after it has been processed by the platform. Easy.Tools warns that in some cases payouts may be delayed or require additional fees. In extreme situations, an MoR account freeze (e.g., Flurly) halts all sellers' revenues.
- No control over invoices and customer relationship. Since the formal seller is the MoR, its name appears on invoices. The creator may lose direct contact with the customer and brand consistency.
- Tax obligations even below thresholds. Easy.Tools notes that small creators selling independently often do not reach the thresholds triggering VAT registration obligations in other countries, but an MoR by definition exceeds those thresholds and collects tax from the first transaction.

Lemon Squeezy as a Merchant of Record

Lemon Squeezy is one of the most well-known examples of a platform operating as a Merchant of Record. The company's website states plainly: "Lemon Squeezy is a Merchant of Record, which means digital sales tax and compliance are handled for you." The platform encourages creators to "sell their products through one trusted entity" that takes over global tax settlements. In the purchasing process, the customer initiates payment on the creator's page, but the transaction is concluded between the customer and Lemon Squeezy, and the company delivers the product and resolves any disputes.

Lemon Squeezy's documentation reminds users that with every purchase, the MoR is responsible for payment processing, tax collection, and refunds, and the platform "takes on all these obligations." The company has built strong mechanisms for fraud prevention, refund handling, and compliance in one package. Since July 2024, Lemon Squeezy belongs to Stripe. In the acquisition announcement, the company's CEO wrote that Lemon Squeezy had been using Stripe for payment processing since the beginning of its operations. A Payments Dive article also notes that the Lemon Squeezy founder confirmed using Stripe as the payment processor since 2020. Users note that this makes it easy to transfer customer data because Lemon Squeezy uses Stripe "behind the scenes".

Following the Stripe acquisition, the company declares it will continue developing its MoR services while leveraging Stripe's technical infrastructure for payments and developer support. This means greater stability and the ability to integrate with the Stripe ecosystem, which is important for creators using invoicing automation.

How to issue an invoice for a lemonsqueezy.com transaction in Poland?

Although Lemon Squeezy as a Merchant of Record issues invoices to customers in its own name, Polish creators still need to record revenue and issue a sales invoice in their accounting system. Since Lemon Squeezy uses Stripe's infrastructure for payment processing, transactions from lemonsqueezy.com appear in the Stripe account.

To automate invoicing:

1. Connect your Stripe account to striptu.com. Striptu is a Polish SaaS that integrates Stripe with invoicing services like Fakturownia. You log in to striptu.com, authorize access to your Stripe account, and specify which transactions should be forwarded for invoicing.
2. Configure the integration with Fakturownia or another accounting system. In Striptu's settings, you select Fakturownia as the destination. With each Lemon Squeezy payment, the application pulls data from Stripe and automatically creates the appropriate invoice in Fakturownia (with or without VAT, depending on the counterparty's status).
3. Maintain compliance with Polish law. In Poland, invoices must be issued in PLN, and sales must be converted using the NBP exchange rate from the day preceding the transaction. Striptu automatically retrieves exchange rates and fills in the fields required for e-invoicing. This allows creators to settle Lemon Squeezy revenue in accordance with the law without manually re-entering data.

Summary

The Merchant of Record model can significantly simplify global sales, especially for creators of info-products and SaaS. Transferring obligations related to taxes, refunds, and compliance to an external entity saves time and allows focus on creating value. However, it is worth being aware of the costs, loss of control, and potential risks associated with operating under someone else's name.

Lemon Squeezy is a practical example of MoR -- it handles digital sales tax, refunds, and fraud using Stripe's infrastructure. For Polish creators, this means they can take advantage of the platform's simplicity while, thanks to the striptu.com integration, easily forwarding payment data to Fakturownia and issuing invoices in compliance with Polish law.