Published by MBA Skool Team, Last Updated: March 15, 2015
What is Vendor Program?
A vendor program, also called as a vendor leasing program or a vendor financing program is the process of lending money to one or more of a company’s customers in order to help them buy the company’s products.
When a company is in the business of selling large equipment or technology to businesses, often purchasing through cash is difficult. But the customer might not really be interested in taking a loan and going through all the hassle in order to make that purchase. In such a case, the company provides financial support to the customer through a vendor program like paying in instalments. In a vendor leasing program, the company is effectively buying its own products at that point of time and still increasing its sales.
Advantages of vendor programs:
• Vendor programs help in increasing sales
• Lease payments are eligible for tax deductions
• Customers enjoy the benefit of the product immediately even if they did not pay the full amount for the purchase
• Since customers think of their expenses in terms of every month than over a lifetime, selling through these programs becomes easier
Disadvantages of vendor programs:
• The customer might default in payments after a point of time, when even if the company is taking back the product or good, it still incurs some loss in terms of the used product
• From the customer’s point of view, they have to pay extra interest on every month’s payments which would not have been the case if the entire payment was made at once
For example, while purchasing a car, the dealer provides an option of paying in instalments instead of making the full payment at once. The financing can be either done by the dealer himself, or most of the times. These dealers have tie ups with financing companies who provide the financing.
Hence, this concludes the definition of Vendor Program 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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