Short-term Financing/Vendor Financing – Payment Terms

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Globe for WikiEducator.jpg Unit 7.1-Forms of Short-term Financing 

Introduction | Preparing to Borrow | Vendor Financing | Documentary Collections | Bank Check | Personal Resources | Bank Financing | Export Credit Insurance | Guarantees | Ex-Im Bank Financing | SBA | Equity Investment | Earnings Requirments | Working Capital | Collateral | Resource Management | Primary Differences | Factoring | Forfaiting | Summary | Resources | Activities | Assessment

Vendor Financing – Payment Terms

Open Account

Vendors are the suppliers of raw materials that are used in the production of inventory. It is in the best interest of these vendors to sell as much of their product as possible but only to a qualified buyer. Credit terms provided to a buyer are a key financing option. Most companies do not understand how important it is to have these credit terms available. The vendor or supplier of these materials or manufactured goods is actually financing the company, eliminating the need to go to another financing source to provide funds to purchase these goods. The company that meets its obligations is more likely to be able to obtain additional credit and favorable terms in the future. It is also much easier for a startup company to build a relationship with favorable terms with a supplier or vendor over any other funding source. Each will have specific qualifying criteria, but often a minimum credit facility will be provided to a buyer with a decent balance sheet.