Vendor financing
Vendor financing is when a vendor (supplier) offers its customers credit to help them buy goods or services. Instead of requiring immediate payment, the vendor allows the buyer to pay over time, often with the help of a third-party financier.
How it works in detail:
• Step 1
The vendor delivers goods or services to a buyer. The buyer needs time to pay, either because they don’t have enough immediate cash or because they want to manage cash flow better.
• Step 2
The vendor provides financing terms that allow the buyer to pay over an extended period (e.g., 90 or 180 days).
• Step 3
In many cases, the vendor doesn’t wait for the buyer to pay over time but partners with a financial institution that advances the payment to the vendor. This allows the vendor to get paid immediately without waiting for the buyer.
• Step 4
The buyer repays the financial institution in installments as per the financing agreement, typically with interest.
Vendor financing helps the buyer acquire goods without upfront payment and helps the vendor secure immediate funds without waiting for the buyer.