Financial Glossary: Vendor Financing


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Vendor Financing

Vendor Financing

The lending of money by a company to one of its customers so that the customer can buy products from them.

Vendor finance is usually in the form of deferred loans from, or shares subscribed by, the vendor. The vendor usually takes shares alongside the management in the new entity. This category of finance is generally used where the vendor's expectation of the value of the business is higher than that of management and the institutions backing them

By doing this, the company increases their sales even though they are basically buying their own products. 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.

Posted by IQPC Worldwide Pte

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