What Are Vendor Guarantees? A Vendor Guarantee or Vendor Assurance Program is when you have goods pre-sold but your credit and/or time in business will not allow you to buy the goods from your supplier. Many times a Vendor Assurance Program is also utilized with Invoice Factoring Facility.
For example, you have an order to supply cleaning supplies to the government. Your supplier wants payment in advance or a guarantee that they will receive a payment. An invoice factoring company knowing that they will factor your invoice will guarantee payment to your vendor or pay out of advance proceeds.
In addition, if you are just starting up, many times large companies or government entities will want to make sure you have the creditworthiness and working capital to fulfill your contracts and commitments. We can also write letters on your behalf showing your clients that you have a certain dollar amount of credit facility in place.
Some key points to remember about Vendor Guarantees:
- Your supplier needs to agree to this arrangement
- The factoring company will only pay your supplier if you factor invoices. This is very important!
- Once an invoice is factored, the factoring company remits the funds (or part thereof) to your suppliers
- Any remaining funds, after paying off your suppliers, go to your company
- This works best with suppliers which you have a good track record
Why would a supplier agree to a vendor assurance program? Well, because it gives them the chance to sell your company more goods with the assurance that they will get payments from your working capital source.
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