What Is a Vendor? 4 Types of Vendors in the Supply Chain

A vendor is a person, organization (usually with a business name), or some other legal entity that makes goods or sells its services to a consumer or other business owners. The vendor does not necessarily make their own goods and does not have to be a manufacturer. Instead, a vendor can resell goods they purchased from another vendor and mark up their price accordingly. Some businesses that sell directly to consumers are also considered vendors, like restaurants or retailers.

There are four different types of vendors in the supply chain, and these companies and business owners perform different roles.

1. 1. Manufacturer: A manufacturer turns raw materials into a product. They sell that product to wholesalers, direct to a retail establishment, or to the end user in large quantities. Manufacturing is often the first step in the supply chain.
2. 2. Retailer: A retailer is a reseller who offers products for sale at a retail store or online—it can be clothing, office supplies, street vendors who sell hot dogs, or anything else. They focus on buying products from another vendor—usually a wholesale vendor—and then resell them to the consumer.
3. 3. Service provider: A service provider offers a service, such as maintenance or labor. Examples include services in consulting, janitorial, information technology, air-conditioning repair, building maintenance, and banking.
4. 4. Wholesaler: Wholesale vendors handle procurement of the product by sourcing them from a manufacturer or another wholesaler. Then they act as a middleman, reselling the goods to a retail establishment, a distributor, another buyer, or someone who has established a business account with them.

Small businesses or large corporations that want to resell a product or service need to establish a vendor relationship with a vendor that supplies goods. Known as vendor registration, this process can involve a list of actions like filling out a credit application, putting a company credit card on file for payments, giving them your company phone number, and setting the terms for payment.

Some vendors require purchase orders before they process an order. Additionally, some vendors want their payments immediately, while others set out payment terms. For example, under net 30 terms, the vendor expects payment within 30 days—if you agree to these terms, you have established a net 30 account with the vendor. They also may establish a credit limit for your account. Vendors use payment terms like these to keep their cash flow running smoothly.

Vendors are doing business themselves and have to establish similar processes for their own vendors. They may have to secure a lender to get their product in stock or take out a loan with their personal credit if they are a privately owned company.

Just like you build personal credit, you need to build business credit. Before you can get business credit, however, you need to acquire a Duns number, which business credit bureau Dun & Bradstreet issues. Once you have a Duns number, you can establish payment terms with your vendor accounts and get vendor credit. This can help you get a business loan or line of credit.

There are other methods for securing trade credit with a vendor. Net 30 vendors can report your payment history to business credit reporting agencies and give you a good business rating. By using histories like this to build up a good business credit profile, you can establish your new business as a credit-worthy one.

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