What Is a Vendor?

What Is a Vendor?

Let me tell you directly: a vendor is a party in the supply chain that sells goods and services to companies or consumers. You'll find vendors at various points, including manufacturers, wholesalers, and retailers. These entities get paid for the goods they provide to their customers. Don't confuse them with suppliers, which provide raw materials for production—that's a key difference you need to remember.

Key Takeaways

Here's what you should know: a vendor is an individual or business that provides goods or services. They appear throughout the supply chain. The types include manufacturers, retailers, wholesalers, and service providers. That's the essence—straightforward and essential for understanding business operations.

How Vendors Work

A vendor is a person or business entity that sells something. They generally find somewhere to purchase their goods and services. After acquiring the necessary items, the vendor markets and sells their wares through whichever method works best for them. If you're thinking of a food truck vendor, they ensure there are enough supplies to make menu items and feed an expected number of customers before driving to a target area and selling food.

You see vendors throughout the supply chain, which is the sum of all individuals, organizations, resources, activities, and technologies used to manufacture and sell a product or service. The supply chain starts with the production and delivery of raw materials and ends with the sale and final delivery of the product.

Manufacturers and retailers try to eliminate as much of the supply chain as possible, knowing that the final cost of a product increases with each link in the chain. The supply chain typically consists of three parts: a manufacturer, a seller, and a reseller or retailer. Vendors can be cheaper than a traditional supply chain because some links are bypassed.

Fast Fact

States require most vendors to be licensed. If you're considering becoming a vendor or using one, check with your state licensing office to learn about the requirements—that's a practical step you shouldn't skip.

Types of Vendors

There are several types of vendors, but they generally fall into one or two of four categories. Manufacturers turn raw materials into finished goods and sell them to wholesalers and retailers. Retailers are companies that buy products from other vendors and sell them to consumers—for example, Target sells home appliances and other home products. Wholesalers generally buy products in bulk quantities and sell them to retailers, and some sell directly to consumers, known as wholesaler-retailers. Service providers offer services to businesses and consumers.

Business-to-Business (B2B) Vendor

Many vendors act as business-to-business (B2B) sales organizations that provide parts of a product to another business to make an end product. For example, if your small business made widgets out of gadgets, you'd need to find vendors with all the gadgets you need. You might find one vendor that has them all or need multiple vendors to assemble your widgets. In turn, you could sell your widgets on an online retailer platform, becoming a vendor yourself.

Vendor vs. Supplier

As I noted earlier, the terms vendor and supplier are commonly used interchangeably, but there are subtle differences. Suppliers are commonly found early in the supply chain and provide raw materials to manufacturers for the production process. They may also provide semi-finished goods for companies to complete. Some large retail store chains, such as Walmart and Target, rely on suppliers that sell them goods at wholesale prices. In turn, they sell the goods at retail prices to their customers. A vendor that supplies one of these large stores would need a much larger operation to plan for, acquire, and provide the goods and services they are contracted for.

Example of a Vendor

Some vendors provide services for entities of all sizes and levels. For example, the human resources department of a large company may plan a holiday party for its employees. Many hire external vendors to supply goods and services for the event. Sometimes, the event is too large to be held in buildings owned by the business, so the department must choose a location, in which case the event space owner becomes a vendor when the area is reserved and the contract signed.

After that, the HR department reaches out to decorators, who become vendors when hired to transform the event space into a themed party. After the theme is implemented, a catering company is contracted to provide food and beverages for the party. When the company delivers its service, it becomes a vendor to the company hosting the party.

What Is Vendor Reconciliation?

Vendor reconciliation refers to the comparison of a company's payment and accounts payable records to any outstanding invoices and bank statements. This ensures that all internal records are accurate and there is no fraud. It also helps companies build strong relationships with their vendors.

What Is a Real-World Example of a Vendor?

Amazon, while primarily known for being an online retailer, is also a web service provider. It provides web hosting, database storage, and many more services businesses need, which are too expensive for many small businesses to buy and maintain.

What Is a Vendor vs. Supplier?

A vendor purchases products and services and resells them to clients. Suppliers, on the other hand, are generally the first supply chain entity where products and services originate.

The Bottom Line

Vendors purchase goods and services and resell them to business clients and consumers. You find vendors throughout many business models because paying a vendor is sometimes cheaper than buying directly from a supplier. They can be businesses of any size, from a one-person hotdog stand on the sidewalk to a large vendor that stocks warehouse retailers.