Line of Credit

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Vendor Line of Credit

A vendor line of credit is one of the most useful and flexible forms of finance available to business.

Most lines of credit for business are extended by lenders but vendors will often extend lines of credit as well. Vendors will extend lines of credit to firms that they supply with inventory and supplies.

Vendors will extend lines of credit to their customers for a wide variety of reasons. For example a vendor may want to create a preferential relationship with a customer. A vendor may also want to keep its customers in business.

Many vendors will extend vendor credit to startup firms because they want to expand their customer base. They also want to establish good relationships with new customers in order to keep customers for life.

Inventory Lines of Credit

One of the most common vendor lines of credit is inventory credit. This occurs when a vendor provides a customer with inventory to sell on credit. Under this line of credit a business; usually a retailer, gets inventory and doesn’t have to pay for it until later.

In some inventory credit arrangements; such as those food suppliers have with restaurants and grocery stores or bars have with liquor distributors and breweries, the vendor delivers inventory on a regular basis usually once a week. The vendor then sends the business a bill which they pay all or a portion of usually once a month. Such an arrangement can be a vendor line of credit.

In many cases, vendors will allow a business usually a regular customer to forgo a payment or pay a smaller amount of money. Vendors may also have a special arrangement for smaller businesses

Floor Plans

Another vendor line of credit is a floor plan. Under a floor plan the vendor provides the retailer with inventory and the retailer doesn’t have to pay the vendor back for the inventory until it sells. Floor plans and similar arrangements are also available to some distributors from manufacturers.

Floor plans are most common in the auto, appliance and electronics industries. Historically, retailers have had to pay some sort of fee to the vendor for the floor plans. Floor plans were originally created to enable smaller retailers to sell big ticket goods such as furniture and appliances. They aren’t as common as they were a few decades ago because of the growth of larger retailers.

Cash Credit from Vendors

Some vendors will make cash lines of credit available to businesses. Breweries and beer distributors have historically made lines of credit available to bars and liquor stores for example.

Sometimes a vendor will make a line of credit available to a business so it can purchase a piece of special equipment such as a refrigerator. Some vendors may also make emergency lines of credit available to businesses.

Vendor Line of Credit Advantages

Vendor lines of credit are among the best lines of credit available to business because they are low cost and highly flexible. One big advantage to vendor credit is that vendors may not require credit checks. Another is that vendor credit is often available for businesses that sell a large amount of a vendor’s products.