Vendor fund is the money a company or an individual receives from the vendor(s) whose products this company or individual buys for resale through their outlet. These vendor funds are given by the vendors to increase sell-through of their products. The company can receive vendor funds for either merchandising activities or buying activities.
Some of the merchandising activities for which a company may get vendor funds are as follows:
1. Vendor’s product’s placement in the company’s advertising
2. Putting the vendors’ products in prominent display locations in the company’s stores
3. Introduction of new products through the company’s retail stores and distribution system
4. Company agreeing to exclusively sell only the vendors products in certain categories;
5. To compensate for temporary price reductions that are offered and borne by the company to push the vendor’s products
Some of the buying activities for which a company may get vendor funds are as follows:
1. Volume commitment rebates
2. To obtain credits for purchasing products in advance of their need
3. For giving cash discounts for the early payment of merchandise purchases
Mostly, these vendor fund contracts are for less than a year.
Vendor Funds may be of one of the following five types:
1. Off-Invoice: This is the amount that the retailer deducts from the vendor’s invoice. The amount deducted is for the products retailer has bought and is dependent on how many the retailer actually sells to consumers. Here, the vendor creates the invoice.
2. Scanback: This is the amount the vendor reimburses the retailer for each unit of product actually sold to the consumers.
3. Billback: This is the amount which the retailer periodically bills the vendor. The vendor doesn’t have to make any upfront payments or per product payment.
4. Lump Sum: This is the amount provided by a vendor, all at once, to be used by retailer over a period of time to promote the vendor’s products.
5. Fixed Sum: This is a fixed amount that the vendor gives to the retailer. This amount must be consumed completely within an offer period.
Hence, this concludes the definition of Vendor Fund along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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