Vendor

A vendor is a business or individual that supplies goods or services to another business or to consumers in exchange for payment. In accounting the word is used mainly from the buyer's side: vendors are the parties a company buys from, receives invoices from and pays through its accounts payable process. A company's list of approved vendors, with their addresses, tax details, bank information and payment terms, is kept in a record known as the vendor master file.

Vendor and supplier are often used interchangeably. Some businesses draw a line between suppliers, which provide raw materials and components for production, and vendors, which sell finished goods or services such as software, cleaning or legal advice. In retail and everyday speech, a vendor can also mean anyone selling to the public, such as a street vendor. Vendors are one of the main groups of stakeholders in any business.

Every regular bill a household pays comes from a vendor of some kind: the electricity company, the mobile phone provider, the plumber who fixed the sink. A business has the same thing on a larger scale, often with hundreds or thousands of vendors.

Keeping a vendor list is like keeping a well-organized contact list for everyone you buy from, with a note of what you buy, what price was agreed and when payment is due. Before adding someone new, a careful business checks that they are who they say they are, so that money goes to the right place.

Buying from a vendor normally follows a set sequence:

1. An employee submits a purchase requisition describing what is needed.
2. The purchasing department issues a purchase order to an approved vendor.
3. The goods or services are received and a receiving report is prepared.
4. The vendor sends an invoice.
5. Accounts payable matches the purchase order, receiving report and invoice, a check known as the three-way match.
6. The invoice is approved, recorded with a credit to accounts payable, and paid by the due date.

Before paying a US vendor, businesses generally ask for Form W-9, which supplies the vendor's legal name and taxpayer identification number. The information is needed to file Form 1099-NEC for payments to an independent contractor or other unincorporated service provider. For payments made in 2026 and later, the reporting threshold is $2,000 per vendor per year, up from the $600 that applied for many years. If a vendor fails to provide a correct taxpayer identification number, the payer may have to apply backup withholding, currently at 24 percent.

Many companies also screen new vendors against government sanctions lists, including those of OFAC, and run know your vendor checks on ownership, financial stability and reputation.

Vendors usually set credit terms that allow the buyer to pay later, a form of supplier credit. Terms of 2/10, net 30 mean the buyer may take a 2 percent early payment discount by paying within 10 days, or pay the full amount within 30 days. On a $10,000 invoice, paying by day 10 costs $9,800. Skipping the discount amounts to borrowing $9,800 for 20 extra days at a cost of $200, an annualized rate of about 37 percent (2/98 times 365/20). For this reason, buyers with spare cash usually take such discounts. Some offer vendors dynamic discounting, in which the discount rises the earlier the invoice is paid.

• Fictitious vendors. An employee sets up a fake vendor and approves invoices that pay into an account he or she controls.
• Duplicate payments. The same invoice is paid twice, by mistake or by design.
• Bank detail changes. Fraudsters pose as a real vendor by email and ask for future payments to go to a new account.
• Kickbacks. A vendor pays a buyer's employee to win orders or approve inflated prices.

Common controls include separation of duties between setting up vendors and approving payments, verifying any bank change by calling the vendor on a number already on file, and regular review of changes to the vendor master file. Larger organizations manage these risks through a formal vendor risk management program.

• Internal Revenue Service: About Form W-9
• Internal Revenue Service: About Form 1099-NEC