Definition
Vendor finance is a form of lending in which a company lends money to be used by the borrower to buy the vendor’s products or property. Vendor finance is usually in the form of deferred loans from, or shares subscribed by, the vendor. The vendor often takes shares in the borrowing company. This category of finance is generally used where the vendor’s expectation of the value of the business is higher than that of the borrower’s bankers, and usually at a higher interest rate than would be offered elsewhere.
Vendor Financing
What is ‘Vendor Financing’
Vendor financing is the lending of money by a company to one of its customers so that the customer can buy products from it. By doing this, the company increases its sales even though it is basically buying its own products.
Explaining ‘Vendor Financing’
This is a sneaky method a company can use to increase sales. It is also very risky, as the companies it lends money to are usually not very financially stable and may never pay back the money. If they don’t pay back the debt, the lending company will just write-down the loss as a bad debt.
Further Reading
- The impact of switching costs on vendor financing – www.sciencedirect.com [PDF]
- Operational decisions, capital structure, and managerial compensation: A news vendor perspective – www.tandfonline.com [PDF]
- A joint economic lot size model with financial collaboration and uncertain investment opportunity – www.sciencedirect.com [PDF]
- Does finance solve the supply chain financing problem? – www.emerald.com [PDF]
- An Analysis of Vendor Financing Incentives in the Supply Chain Finance Receivables Financing Model – en.cnki.com.cn [PDF]
- Vendor financing and its impact on vendor's optimal policies – rucore.libraries.rutgers.edu [PDF]
