Marketplace
Payment Flow Simulator
Follow the money of one marketplace order, from the customer's checkout to the vendor's payout. Compare the Merchant of Record and agency models, and calculate the commission on items, shipping and tax.
How the commission is computed
Who ends up with what
How money flows through a marketplace order
Every marketplace order moves money between five parties: the customer, the payment provider, the marketplace, the vendor and the tax authority. The customer pays once at checkout for the line items, the shipping and the tax, minus any discount. The payment provider settles the funds, the vendor receives its share minus the marketplace commission, and the order tax is remitted to the tax authority.
The simulator above follows one order through these steps. Solid arrows are money, numbered in the order it moves, and dashed arrows are the invoices and statements that go with it. Change a setting and the amounts, payouts and invoices update instantly.
Merchant of Record vs agency
Under the Merchant of Record model, the marketplace is the legal seller. It collects the full payment, sends the sales invoice to the customer and remits the order tax. It then pays each vendor its share with the commission already deducted, and the vendor invoices the marketplace for the goods, or the marketplace self-bills on its behalf.
Under the agency model, the vendor is the legal seller and invoices the customer. The payment provider splits the payment at checkout: the vendor receives its share, the commission is withheld for the marketplace, and the marketplace invoices the vendor for its fee. The vendor remits the tax on its goods.
The right model depends on your country, your payment provider and who should carry tax, refunds and chargebacks. Our guide to agency vs. merchant of record compares both in depth, and marketplace split payments explains how the payment is divided.
How is a marketplace commission calculated?
A commission is a rate applied to a commission base. The base can include the line items, the shipping and even the tax, and the items can count before or after the discount. Many marketplaces also charge VAT on their commission, which the vendor can usually reclaim.
Take the sample order: 100 € of line items, a 10 € discount, 10 € of shipping and 20% tax, so the customer pays 120 €. With a 15% commission on the items after discount plus the shipping, the base is 100 € and the commission 15 €. With 21% VAT on top, the vendor pays 18.15 € in fees.
Watch out for commission charged on money the vendor never receives. If the marketplace keeps the shipping but the commission still counts it, the vendor pays commission on shipping it never sees. The simulator flags these cases under the diagram.
Shipping, discounts and tax
Who keeps the shipping? When vendors ship their own orders, the shipping usually goes to them. When the marketplace handles fulfillment or offers free shipping, it keeps it.
Who funds the discount? A vendor-funded discount lowers what the vendor receives. A marketplace-funded discount is topped up, so the vendor still gets the full price and the marketplace absorbs the cost.
Who remits the tax? Under Merchant of Record, always the marketplace. Under agency, the vendor for its goods, and whoever keeps the shipping for the tax on shipping. Read more on marketplace tax and duty.
Garnet applies these same choices to every real order: set them once in the finance computation settings and each vendor payout is calculated for you.
Payment flow questions
What marketplace operators ask about commissions, payouts and who collects the money.
Ask a questionWhat is a marketplace payment flow?
It is the path the money of an order takes, from the checkout to the payouts. The customer pays once for the line items, shipping and tax. The payment provider settles the funds, the vendor receives its share minus the marketplace commission, and the order tax goes to the tax authority. The invoices that come with each payment are part of the flow too.
What is the difference between merchant of record and agency?
Under merchant of record, the marketplace is the legal seller: it collects the full payment, invoices the customer, remits the tax and pays vendors after deducting its commission. Under the agency model, the vendor is the legal seller and invoices the customer, the payment is split at checkout, and the marketplace only earns a commission, which it invoices to the vendor.
How do you calculate a marketplace commission?
Multiply the commission rate by the commission base. The base can include the line items, the shipping and the tax, with the items counted before or after the discount. For an order with 90 euros of items after discount and 10 euros of shipping, a 15% commission on both is 15 euros. VAT on the commission, when charged, comes on top.
Should the marketplace commission include shipping?
It makes sense when vendors keep the shipping, as it discourages inflated shipping rates. It is unfair when the marketplace keeps the shipping, because the vendor then pays commission on money it never receives.
Who pays for discounts on a marketplace?
Either side can. A vendor-funded discount lowers the vendor payout. A marketplace-funded discount is topped up by the marketplace, so the vendor still receives the full price. Counting the commission after the discount lowers the commission in both cases.
Who collects and remits sales tax or VAT on a marketplace order?
Under merchant of record, the marketplace collects and remits the tax on the whole order, because it is the seller. Under the agency model, each vendor remits the tax on its own goods. Marketplace facilitator rules in some countries and US states can still make the marketplace responsible.
Run either model on Shopify
Garnet handles commissions, vendor payouts and invoices for Merchant of Record and agency marketplaces.
Get started