What Is a Vendor?
A vendor is a person or company that sells goods or services to a business. In accounting, vendors are the parties a business buys from and owes money to, tracked through accounts payable and the vendor subledger.
What a vendor is and why it matters
Vendors are on the buying side of a business's operations — the suppliers of everything from inventory and materials to software and professional services. Each vendor a business transacts with becomes a record in the accounts-payable subledger, tracking what's owed, payment terms, and history. Managing vendors well matters for cash flow (timing payments to terms), for cost control (negotiating prices and discounts), and for compliance (collecting tax forms like a W-9 in the US and issuing 1099s where required). Clean vendor records also underpin the three-way match that prevents duplicate or incorrect payments.
A worked example
A restaurant works with several vendors: a food supplier, a linen service, and a software provider. When the food supplier delivers $3,000 of goods with Net 15 terms, the restaurant records a payable to that vendor: debit *Inventory/COGS* $3,000, credit *Accounts Payable — Food Supplier* $3,000. The vendor subledger now shows $3,000 owed to that specific supplier, due in 15 days, and the payment is scheduled accordingly.
How firms handle it today
Firms maintain vendor records, track payables and terms per vendor, collect tax documentation, and match vendor invoices to purchase orders and receipts before approving payment.
Related terms
- Accounts payable
- Purchase order
- Invoice
- Vendor
- Compliance
FAQ
What's the difference between a vendor and a supplier?
The terms are largely interchangeable; "supplier" often implies goods for production, while "vendor" is used broadly for any seller of goods or services.
How are vendors tracked in accounting?
Through the accounts-payable subledger, which records what's owed to each vendor, their terms, and payment history.
What is a W-9 and why collect it from vendors?
In the US, a W-9 captures a vendor's taxpayer information so the business can issue a 1099 when required for reportable payments.