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
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
8 of the best beachside properties for saleThe best beachside properties for sale – from an Arts & Crafts house in Hampshire with 128 metres of beach frontage, to a 16th-century house in Norfolk, just 300 metres from a Blue Flag beach
-
Halifax: House prices rose 0.3% in August, marking third increase in a rowThe average UK property now costs £299,331, a new record high. But could the Autumn Budget derail the housing market?
