Guide
How SaaS billing actually works
Billing is a structural choice, not a tooling one. Who legally sells your product determines how tax, compliance, chargebacks, and risk are handled.
The real choice
Most teams pick a billing tool based on features, pricing, and developer experience. That’s the wrong level.
The underlying decision is simpler: are you the seller of record, or is someone selling on your behalf?
Everything else — tax registration, invoicing, VAT and sales-tax remittance, chargeback exposure, dispute handling, fraud liability — follows from that choice.
Two models
Direct billing
You are the seller. A payment processor — Stripe is the default — handles card transactions. You handle the rest: tax registration in every relevant jurisdiction, invoices, VAT and sales tax, dunning, compliance, fraud response.
Merchant of record (MoR)
A company like Paddle, Dodo Payments, or Polar legally sells your product. Your customer pays them. They remit to you. In exchange, they handle tax registration, VAT and sales tax, chargebacks, compliance, and fraud.
What each model handles
| Direct | Merchant of record | |
|---|---|---|
| Payment processing | You + processor | Them |
| Tax registration | You, per jurisdiction | Them |
| VAT / sales tax | You calculate and remit | Them |
| Chargeback liability | You | Them |
| Compliance exposure | You | Them |
| Developer control | Full API surface | Limited to their surface |
| Total cost | ~2.9% + fixed | 5–10% all-in |
Trade-offs
Direct billing is cheaper per transaction. It becomes more expensive in everything around the transaction — tax registration, invoicing, compliance staff, dispute handling, cross-border reporting.
MoR billing is more expensive per transaction. It removes categories of work most teams don’t know they need until they have customers in thirty jurisdictions.
The decision isn’t about margin. It’s about what your team should spend time on.
Why it’s hard to reverse
Billing sits in the middle of everything. Customer records, invoices, subscriptions, webhooks, analytics, cash flow — they all depend on it.
Switching billing models after launch means:
- —migrating customer records between legal entities
- —handling active subscriptions mid-cycle
- —reconciling historical tax records
- —rewriting webhook integrations and downstream sync
- —updating every invoice, receipt, and email template
Teams that pick the wrong model spend six to twelve months migrating when they could have got it right on day one.
What this means for you
Your product type, customer base, geography, and priorities determine which model fits.
- —B2B SaaS with technical buyers and contractual invoicing — usually direct.
- —B2C digital products sold globally — usually merchant of record.
- —Usage-based pricing with complex metering — usually direct.
- —Small team, fast launch, no compliance expertise — usually merchant of record.
Don’t start with the platform. Start with the model.
If you need clarity, use one of the entry points on the site.