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What is a Merchant of Record?

Understanding how your business handles payments is crucial for ensuring smooth operations and compliance. One term that often surfaces, especially for B2B businesses delving into online sales, is “Merchant of Record” (MoR). But what exactly does it mean, and why is it significant for your B2B business?

What is a Merchant of Record?

A Merchant of Record is essentially the entity responsible for all the transactions made through a specific payment system. This includes the nitty-gritty of payment processing, from managing customer transactions to ensuring the adherence to various legal and compliance standards related to payments, such as PCI compliance, sales tax collection, and remittance. In simpler terms, the MoR is the face of the transaction, taking on the financial and legal liability and back-end processes that come with each sale.

A B2B business has the option to act as their own merchant of record or delegate this role to a third party that sells goods and assumes liability on their behalf. This approach allows a business to allocate more time and resources to other important business functions like marketing and customer acquisition.

The responsibilities of a Merchant of Record when processing payments

The MoR – whether a B2B business directly, or an appointed 3rd-party – is responsible for every transaction. When a customer makes a purchase, the MoR authenticates the transaction, and handles any chargebacks or disputes that might arise. The MoR must also ensure the security and integrity of the payment process, guaranteeing that customer data is protected and that transactions comply with global and local regulations.

Here’s a simplified breakdown of how a 3rd-party MoR operates in a B2B transaction:

  1. Customer places an order: Your B2B customer places an order on your platform or through another sales channel.
  2. Payment processing: The MoR steps in and securely processes the customer’s payment, typically via credit card, debit card, or other approved methods.
  3. Funds settlement: The MoR receives the funds from the customer and deducts any processing fees.
  4. Payout to your business: The MoR disburses the remaining funds to your B2B business, minus any additional fees or deductions.

Which types of B2B businesses need a Merchant of Record?

The need for a Merchant of Record (MoR) spans various sectors within the B2B landscape, particularly for businesses that engage in online transactions or are looking to expand their digital footprint. Here are some types of B2B businesses for which partnering with a 3rd party MoR is especially beneficial:

E-Commerce platforms: B2B businesses that operate online marketplaces or e-commerce platforms need an MoR to handle the complexities of online payments, including secure transaction processing, fraud prevention, and compliance with global payment regulations.

Software as a Service (SaaS) providers: Companies offering subscription-based products or services require an MoR to manage recurring payments, invoicing, and subscription management, ensuring a smooth billing cycle for their corporate clients.

Digital marketplaces: Online marketplaces that facilitate transactions between multiple buyers and sellers present unique challenges and opportunities in the e-commerce ecosystem. These platforms, ranging from online retail marketplaces to service-oriented platforms, often require a sophisticated approach to payment processing, making the role of a Merchant of Record (MoR) particularly significant.

Interested in learning more?

The Mondu blog is your go-to resource for deepening your knowledge on crucial business topics such as cash flow management, trade credit, B2B payments, and much more!

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