Vendor Financing
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.
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]
… are more closely related to cooperatives than to traditional forms of financial intermediation; they … We show that vendor financing may also arise in an oligopolistic setting and demonstrate its role … is also offered by the company itself or, equivalently, by a captive finance subsidiary …
www.sciencedirect.com [PDF]
… are more closely related to cooperatives than to traditional forms of financial intermediation; they … We show that vendor financing may also arise in an oligopolistic setting and demonstrate its role … is also offered by the company itself or, equivalently, by a captive finance subsidiary …
www.tandfonline.com [PDF]
… are more closely related to cooperatives than to traditional forms of financial intermediation; they … We show that vendor financing may also arise in an oligopolistic setting and demonstrate its role … is also offered by the company itself or, equivalently, by a captive finance subsidiary …
www.sciencedirect.com [PDF]
… are more closely related to cooperatives than to traditional forms of financial intermediation; they … We show that vendor financing may also arise in an oligopolistic setting and demonstrate its role … is also offered by the company itself or, equivalently, by a captive finance subsidiary …
www.emerald.com [PDF]
… are more closely related to cooperatives than to traditional forms of financial intermediation; they … We show that vendor financing may also arise in an oligopolistic setting and demonstrate its role … is also offered by the company itself or, equivalently, by a captive finance subsidiary …
en.cnki.com.cn [PDF]
… are more closely related to cooperatives than to traditional forms of financial intermediation; they … We show that vendor financing may also arise in an oligopolistic setting and demonstrate its role … is also offered by the company itself or, equivalently, by a captive finance subsidiary …
rucore.libraries.rutgers.edu [PDF]
… are more closely related to cooperatives than to traditional forms of financial intermediation; they … We show that vendor financing may also arise in an oligopolistic setting and demonstrate its role … is also offered by the company itself or, equivalently, by a captive finance subsidiary …
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Q&A About Vendor Financing
How does vendor financing increase sales?
By buying their own products, vendors increase their sales.
Who are the parties involved in vendor financing?
The vendor, who lends money, and the buyer, who buys products.
Why do vendors use this method to increase sales?
Vendors use this method to increase sales because it allows them to sell more than they would have otherwise sold without having to put out extra cash for inventory or wait for payments on those goods after selling them. This also helps vendors avoid paying interest on credit cards or other forms of credit when they purchase inventory with those methods. They are able to keep all profits made from selling their goods instead of giving some away in interest payments and fees associated with credit card purchases and returns/exchanges if they were using those methods instead of vendor financing.
What is risky about this method?
It's risky because companies that receive loans may not pay them back. If they don't pay back the debt, vendors will write-down losses as bad debts.
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.