Vendor Financing

AAA

DEFINITION of 'Vendor Financing'

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Voodoo Accounting

    Creative rather than conservative accounting practices. Voodoo ...
  2. Volume Discount

    A financial incentive for individuals or businesses that purchase ...
  3. Time-Sale Financing

    A form of indirect dealer lending or financing used by banks ...
  4. Floor Planning

    A form of financing pertaining specifically to inventory. A lender ...
  5. Vendor Note

    A type of debt instrument used in a particular type of short-term ...
  6. Bad Debt

    A debt that is not collectible and therefore worthless to the ...
RELATED FAQS
  1. Why did Target's (TGT) expansion into Canada fail so quickly?

    Target (TGT) decided to expand north into Canadian markets in 2011. By 2013, it had built 133 stores across several Canadian ... Read Full Answer >>
  2. How can an investor terminate a derivative contract?

    Most derivatives contracts have provisions allowing for early termination and netting out the initial investment. The early ... Read Full Answer >>
  3. How do externalities represent profit opportunities?

    Economic externalities expose market transactions where the full costs or benefits of economic activity are not being internalized ... Read Full Answer >>
  4. What are the major barriers to entry for new companies in the drugs sector?

    Pharmaceutical companies face infamously high barriers to entry in the United States. Many economics and business textbooks ... Read Full Answer >>
  5. Can a business ever be too small to issue commercial paper?

    There are effective โ€“ though not legal โ€“ restrictions on the size of commercial paper issuers. Any company can issue commercial ... Read Full Answer >>
  6. How are distribution channels generally organized?

    Distribution channels are generally organized according to specific business needs. They can be simple or complex, direct ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Top 8 Ways Companies Cook The Books

    Find out more about the fraudulent accounting methods some companies use to fool investors.
  2. Active Trading Fundamentals

    Evaluating A Company's Management

    Financial statements don't tell you everything about a company's health. Investigate the management behind the numbers!
  3. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  4. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  5. Entrepreneurship

    Microfinance & Macrofinance: What's The Difference?

    What are the key differences between microfinance and macrofinance? Investopedia takes a look.
  6. Entrepreneurship

    How Microfinance and Investment Banking Compare

    Investment banks and microfinance institutions (MFIs) provide similar services, but the clients they serve and the incentives that motivate them are very different.
  7. Professionals

    Why Advisors Should Focus on Relationships

    Successful financial advisors share a secret: It's about the people, not the numbers.
  8. Entrepreneurship

    Cold Calling Vs. Networking

    Why networking is taking over from cold calling as the best way for financial advisors to grow their client base โ€“ and where cold calling fits in.
  9. Economics

    Gas Dispute Poses Risks For Both The EU And Russia

    The Russia-Ukraine gas dispute has caused energy insecurity for the EU, which is seeking new gas suppliers, and market uncertainty for Russia's Gazprom.
  10. Investing

    What is Debt Financing?

    When a company needs to pay for something, it can pay with cash, or it may finance the purchase. Financing means that it gets the money from other businesses or sources, in return for obligations. ...

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center