Vendor Note

AAA

DEFINITION of 'Vendor Note'

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 Note'

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 ...
  2. Volume Discount

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

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

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

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

    Reducing the book value of an asset because it is overvalued ...
Related Articles
  1. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

  2. Understanding The Cash Conversion Cycle
    Investing Basics

    Understanding The Cash Conversion Cycle

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

    Dynamic Current Ratio: What It Is And ...

  4. What is Globalization?
    Investing

    What is Globalization?

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center