Vendor finance

Vendor finance is a creative way for a firm to fight falling sales. If a customer cannot afford to pay up front, it borrows the funds from the manufacturer. Turnover goes up, of course, but there’s a second win.

Say a business has £10 of stock at the start of the year, buys £100 during the year and ends up with £20 unsold. The ‘cost of goods sold’ expense is £90 (10+100-20). However, if the closing stock is valued at £40, thanks to a recent vendor-financed order at a higher selling price, then the expense falls to £70 (10+100-40).

But there’s a big risk – anyone needing a loan from a supplier to fund purchases could well be in dire financial straits, so there’s a danger the loan will have to be written off.

MoneyWeek magazine

Latest issue:

Magazine cover
Paying by mobile

Why your phone will replace your wallet

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues
Shale gas 'fracking' promises to transform Britain's energy market. Find out what it is, what it means, and how to invest.

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.