Vendor Note

A A A

DEFINITION

A type of debt instrument used in a particular type of short-term loan agreement in which the seller of goods or merchandise sells them to the buyer, but also provides financing for the buyer in the form of a vendor note. The loan is secured by the inventory being sold to the buyer as well as pledges of the buyer's business assets and similar forms of security used to help lessen the perceived risk of the buyer's default.

Also known as a seller note.



INVESTOPEDIA EXPLAINS

Vendor notes can be a useful and convenient form of financing, particularly when well-established sellers with diverse customer bases are taking on new, smaller buyers who typically have small amounts of working capital with which to purchase inventory. The use of vendor financing can make it easier for a company to increase its sales volume, but in doing so it also incurs the risk of the buyers it finances not paying back their loans.

Vendor notes vary in terms of their time to maturity, but notes with time horizons in the range of three to five years are considered common. Many different types of terms and conditions can be built into a vendor note, such as limitations on the types of business practices the buyer can engage in, restrictions on acquiring other inventory or business assets and requirements that specific financial ratios or benchmarks be maintained.


RELATED TERMS
  1. Vendor

    The party in the supply chain that makes goods and services available to companies ...
  2. Volume Discount

    A financial incentive for individuals or businesses that purchase goods in multiple ...
  3. Invoice

    A commercial document that itemizes a transaction between a buyer and a seller. ...
  4. Accounts Receivable - AR

    Money owed by customers (individuals or corporations) to another entity in exchange ...
  5. Write-Off

    A reduction in the value of an asset or earnings by the amount of an expense ...
  6. Write-Down

    Reducing the book value of an asset because it is overvalued compared to the ...
  7. Vendor Financing

    The lending of money by a company to one of its customers so that the customer ...
  8. Net Receivables

    The total money owed to a company by its customers, minus the money owed that ...
  9. Accounts Receivable Financing

    A type of asset-financing arrangement in which a company uses its receivables ...
  10. Receivables

    An asset designation applicable to all debts, unsettled transactions or other ...
Related Articles
  1. Understanding The Cash Conversion Cycle
    Investing Basics

    Understanding The Cash Conversion Cycle

  2. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

  3. Dynamic Current Ratio: What It Is And ...
    Fundamental Analysis

    Dynamic Current Ratio: What It Is And ...

  4. Has Stock Bias Affected Your ETF Asset ...
    Bonds & Fixed Income

    Has Stock Bias Affected Your ETF Asset ...

  5. Buying bonds at a premium? Note these ...
    Bonds & Fixed Income

    Buying bonds at a premium? Note these ...

  6. Is Ukrainian Debt Worth a Look?
    Bonds & Fixed Income

    Is Ukrainian Debt Worth a Look?

  7. Will The High Times In High Yield Continue? ...
    Bonds & Fixed Income

    Will The High Times In High Yield Continue? ...

  8. Unconstrained Investing: What It Is ...
    Bonds & Fixed Income

    Unconstrained Investing: What It Is ...

  9. How To Earn The Most From CDs When Interest ...
    Bonds & Fixed Income

    How To Earn The Most From CDs When Interest ...

  10. Why Now May Be The Right Time For Emerging ...
    Bonds & Fixed Income

    Why Now May Be The Right Time For Emerging ...

comments powered by Disqus
Hot Definitions
  1. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  2. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  3. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  4. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  5. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  6. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
Trading Center