Almost all businesses buy inventory or supplies from other companies. Not all businesses sell inventory or supplies to other companies. Some companies like retailers sell products directly to the public. Companies that do sell supplies or inventory to other companies are typically called vendors.
A vendor is a company that selling goods or supplies to other companies sometimes called vendees. Many vendees place orders with vendors over the phone, fax, or internet. These orders are placed with a document called a purchase order. A purchase order authorizes the vendor to ship specific supplies to the vendee at a specified price. The vendee fills out the purchase order with a description of goods to be ordered as well as shipping information and applicable dates.
The vendor receives the purchase order and then drafts an invoice to send to the vendee. The invoice acts as a bill and a receipt for the vendee. Vendors view invoices as a sales invoice because they are the ones selling the goods. Vendees, on the other hand, view the invoice as a purchase invoice because they are purchasing the goods.
At the agreed upon time, the vendor will ship the goods to the vendee and the vendee will be required to pay for the goods according to the terms in the original purchase order. Many times the original purchase order will include a sales discount or cash discount for early payments. If that is the case, most vendees will choose to pay in cash before the discount period is over.
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