Working with payment infrastructure providers that work off the merchant of record model allows SaaS businesses to grow more quickly. Here’s how:
1. Focus on growth:
Particularly in today’s SaaS climate – where growth and big funding rounds aren’t a given – the MoR model provides you with a scalable solution for payments and billing that will help you to grow sustainably.
Businesses selling through an MoR benefit from access to a global payment network. A good MoR will also be continuously optimizing its payment processes to give you the best conversion, payment acceptance, and renewal rates across the globe.
This also increases your speed to market and gives you the opportunities to maximize on new opportunities more easily. Businesses looking to expand internationally can switch on new payment methods and currencies with ease, without worrying about global sales tax or payment regulations draining your resources. Companies looking to move upmarket and serve enterprise-level businesses can easily start invoicing, without implementing more tools.
The MoR keeps your entire payments infrastructure running in the background, leaving your team to focus on other priorities – safe in the knowledge that revenue is coming in and your data is accurate.
For finance teams, this means telling your business’ story much easier when it comes to raising funds or selling the business.
2. Confidence in your revenue data:
Using an MoR gives you instant access to a ready-built, global payments infrastructure. This allows you to manage payments, and subscriptions from one platform – giving you a single source of revenue and user data.
This is especially beneficial for those running their business on a hybrid billing model, as you can keep both your self-serve and sales-assisted payment data in one platform, with your payments reconciled for you too. This clean, accurate data can then be easily fed into your accounting systems, enterprise resource planning (ERP), and customer relationship management (CRM) software.
3. One set of costs:
A merchant of record is your entire payments infrastructure, in one platform. This makes tracking how much managing payments and billing is costing your business much easier. You’ll have one set of fees, from one provider.
While the fees for an MoR might seem marginally more expensive at first glance, it incorporates everything from payment processing and subscription management, to sales tax compliance, to fraud and chargeback protection – all of which you would otherwise be paying for individually and the cost increases rapidly as you grow and generate more revenue.
Tailwind Labs CEO Adam Wathan was keen to run his business using an MoR to offer him and the team relief from sales tax liabilities and reduce the admin burden of bookkeeping. On costs, he said:
“With our cross-border payments, we were looking at around 3.5% fees with Stripe and 4.5% with PayPal. So, any savings would have been minimal. You just ask yourself, is any saving worth the admin burden and opening yourself up to extra scrutiny from the tax agencies? Absolutely not.”
4. Sales tax and financial compliance:
As a reseller, the MoR is principal in the transaction with the end customer. It is this responsibility that makes them the liable party when it comes to sales tax compliance. It’s on them to register for, file and remit sales tax payments to the local tax authorities. The taxes are then deducted from your sales revenue before you receive your payouts. Not only does this absolve you from any sales tax liability, your bookkeeping becomes much easier too.
Without an MoR, SaaS businesses are faced with increasingly complex sales tax regulations. While there are tools that can help you calculate the sales tax you owe, the majority stop there. This means that it’s still ultimately up to you to register, file and remit sales tax payments, wherever you are liable. What makes it more complex is that sales tax on software is determined by where the customer is based, rather than where the business is located – the regulations also vary from country to county (or in some cases, from state to state) – just to keep you on your toes.
When Resume.io switched from a payment processor to an MoR, the fact that their business was now 100% tax-compliant globally helped increase the business’ appeal as an attractive investment opportunity.
“We just didn’t need to worry about sales tax liabilities surfacing in the due diligence process, that was a huge benefit to us,” Menno Olsthoorn, Managing Director, Resume.io.
Resume went on to receive several offers and accepted an acquisition offer by Talent Inc. in August 2021.