Question

Without a guarantee from the vendor, how can a company take advantage of the vendor financing without moving to the verdor's country.

Answer 1

Vendor financing is a term used when vendor lends money to customer which is used to buy inventory from the vendor. Vendor usually charge higher rate of interest than what is offered by bank as higher risk of default is involved. This usually happens when the company is new and bank is not ready to lend money to the company. Another reason can be that company want to utilise the loan facility from the bank later for major need.

Thus, company take advantage of the vendor financing in the form of trade credit issued by the vendor to customer to repay the amount by the due date. Vendor financing helps in building the relationship between the vendor and the customer.

The vendor financing can be debt financing or the equity financing. In debt financing, vendor sells it's goods to customer for which the amount is to be paid on the later due date. Vendor charge interest rate on the amount that is lend to customer. On contrary, in equity financing the customer transfer the required stocks to the vendor in exchange of the goods that he bought. Thus, company takes advantage of vendor financing.