What is 'Channel Stuffing'
Channel stuffing is a deceptive business practice used by a company to inflate its sales and earnings figures by deliberately sending retailers along its distribution channel more products than they are able to sell to the public.
BREAKING DOWN 'Channel Stuffing'
By channel stuffing, distributors temporarily beef up their accounts receivables. However, unable to sell the excess products, retailers will send the excess items instead of cash back to the distributor, who must readjust its accounts receivable and ultimately its bottom line. In other words, stuffing always catches up with the company, because it cannot maintain sales at the rate it is stuffing.
This is usually done fraudulently to raise the value of the stock. Channel stuffing is illegal.