Vendor finance is the provision of a loan from one company to another so
that goods can be purchased from the company providing the loan. Vendor
finance has a number of advantages which include:
There is one giant disadvantage as any company requiring a loan to purchase their much needed products could well have financial problems. This means that there is a risk that the loan would be written off and the accompanying shares be worth very little.
There are financial institutes who specialize in providing vendor finance facilities to blue chip companies, working as a third party. Other financial consultancies specialize in arranging and negotiating vendor finance schemes for small and medium sized businesses.
This involves seeking potential purchasers, matching them with vendors and arranging the finance for the pair of them. They obviously receive a commission for this activity.
During recessionary times more companies seek vendor finance to solve their liquidity problems.