Vendor finance is when the business selling you something also arranges the credit to pay for it, so you can take delivery of equipment, stock, or software now and pay over months instead of on invoice. In UK practice the supplier rarely uses its own money: a finance house sits behind it, pays the supplier's invoice in full, and collects the instalments from you. That changes who assesses you and how big your limit is. If you came here about a seller funding part of the price when someone buys their business, you want seller financing instead – a different transaction.

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The supplier rarely lends you its own money

Almost every vendor finance deal you'll be offered in the UK has a third party in it. The supplier – a manufacturer, distributor, dealer, or software vendor – has an agreement with a finance house. It often sells that finance under its own brand, so you may not realise anyone else is involved until the paperwork arrives.

It usually runs like this:

1. You choose what you're buying and the supplier quotes you a price alongside a finance option.
2. The finance house credit-assesses your company and confirms the terms.
3. On signature, the finance house pays the supplier's invoice in full and you take delivery.
4. You pay the finance house in monthly instalments, usually with the asset as security.

Three things follow from there.

You are still credit-assessed. Going through a supplier doesn't skip underwriting, it moves it to a funder you hadn't heard of, and a director's personal guarantee may be part of it. Bibby Financial Services, one of the larger providers, says plainly that directors' guarantees may be required.

Your limit isn't set by your supplier's bank balance. It's set by the funder, against your company and against the asset, which is why a small supplier can sometimes arrange more than you'd expect.

And your supplier is paid and out of it. Whatever happens next is between you and the funder, so a long relationship with the person who sold you the machine won't help you if you fall behind.

Two near neighbours are worth separating out. When a supplier lets you pay an invoice 30 days after delivery out of its own pocket, that's trade credit, a far smaller commitment. And supply chain finance runs the other way: a large buyer's funder paying its own suppliers early.

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What it looks like on a real purchase

Take a food delivery company buying vans. The vans cost £500,000, which it doesn't want to pay out of working capital all at once. The dealer it has bought from for years offers finance through its funding partner. The company pays a 10% deposit of £50,000, the funder settles the dealer's invoice, and the balance is repaid monthly over 12 months with interest at 5%, with the vans as security. Miss the payments and the vans go back.

Those figures are an illustration, not a typical deal: rates and deposits vary by funder, asset, and credit profile. The shape is what holds at any size – a deposit, an asset securing the agreement, and a third party who has already paid your supplier.

A supplier can also take shares instead of cash, which is really equity financing with goods attached. It's rare for a limited company buying equipment, and a permanent slice of your business is a steep price for a one-off purchase.

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What to check before you sign

The finance option on a supplier's quote is the easiest one to say yes to, which is why it deserves five minutes of scrutiny. Four things decide whether it's a good deal.

What kind of agreement it is. This is the one that costs real money, and nobody raises it at the quote stage. Capital allowances let you deduct the value of plant and machinery from your profits before tax. They come through the annual investment allowance of up to £1m, full expensing, or the 40% first-year allowance for qualifying plant and machinery bought after 1 January 2026. But GOV.UK is explicit: you can't claim them on things you lease, unless you have a hire purchase contract or a long funding lease. You have to own the asset.

Two identical quotes can leave you in very different places at the end of the tax year. Ask your accountant which structure suits your company before you sign, and read up on the difference between a finance lease and an operating lease if the quote doesn't make it obvious.

That the money only works in one place. Vendor finance is what the law calls a restricted-use credit agreement: credit provided to finance a transaction between you and a named supplier. You can't take the money and shop around, so you're agreeing the price and the finance in one conversation with the same person. Get a second quote on the goods first.

What it actually costs, including the 0% deals. Nobody publishes vendor finance rates, because they depend on the funder, the asset, and your credit profile. What's worth knowing is where a 0% offer comes from. Funders market rate subsidies, deposit contributions, and payment holidays to suppliers as sales incentives, so 0% means your supplier is paying the funder's margin for you. A genuine discount – and a reason to ask what the cash price would have been.

What happens at the end. Most agreements let you own, return, or upgrade the asset when the term finishes. Returning a leased asset means you've paid for the use of something you don't own, which is fine if you wanted to replace it and expensive if you didn't.

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If you're the one offering it

Plenty of readers arrive from the other side of the invoice: you sell equipment, stock, or software, and you keep losing orders to customers who want the goods but can't pay on delivery. Vendor finance fixes that without making you a lender.

You partner with a funder. They pay you in full when your customer signs, then collect the instalments. Your customer gets the goods, you get the cash, and orders tend to get bigger because the decision stops being about this month's bank balance.

Three things to settle before you sign the trading agreement.

Whether it has recourse to you. The most important term, and rarely on the front page. In a non-recourse deal the funder carries the loss if your customer defaults. In a recourse deal it comes back to you: Bibby, for instance, offers buybacks from financially sound suppliers, which means taking the asset and the bad debt onto your own books. If you're offering finance to avoid credit risk, a recourse facility hasn't achieved it.

Whether you qualify. These are partnerships, not sign-ups. Bibby's published criteria ask for at least three years' continuous trading, sound financial performance, strong cash flow, and no adverse credit records for the business or its directors, with directors' guarantees possibly on top. A younger supplier may need a payments-based option instead.

Where it leaves you with the regulator. The FCA says a retailer who arranges finance with a third-party lender is likely to be engaged in credit broking, and that providing the finance yourself may mean entering into regulated credit agreements as lender. Those rules bite on credit to individuals, which in law takes in some unincorporated businesses but never a limited company. So who your customers are decides the answer – a question for your funder and your solicitor before you advertise a finance option, not after.

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Where iwocaPay fits

Everything above is what we do, which is why it's worth saying how.

iwocaPay is vendor finance arranged at the point of payment. You send an invoice or a checkout link, and your trade customer chooses to pay now by bank transfer or to spread the cost over 30 days, three months, or 12 months in equal instalments. We credit-assess them automatically, usually in seconds, and you're paid as soon as they're approved, whichever they pick. Approved limits run from £150 to £30,000, or a share of the buyer's turnover if that's smaller.

On the term that matters most to a supplier: we take on the credit risk, and we never chase you for a buyer's overdue balance. If a customer doesn't pay us, that's between us and them.

You choose who pays for it: absorb the cost and it's interest-free to your customer, which tends to drive more uptake, or pass it on and they pay monthly interest. There's no fee to set up as a seller, and you can create pay links by hand, through your ecommerce checkout, or straight out of Xero. The details are on iwocaPay.

iwocaPay in action: Sandbanks

Sandbanks, a British clothing brand founded in 2019, supplies wholesale customers who place large orders ahead of each new season. It used to offer payment terms to selected accounts and manage them in-house, and a significant number of payments were missed – which hit its cash flow and had its team chasing unpaid invoices. Now its customers get a spending limit of up to £30,000 and spread an order over one or three months. Sandbanks is paid in full up front, and we carry the credit risk.

Read Sandbanks' story

It doesn't suit every sale. The £30,000 ceiling makes it right for trade orders and the things small businesses buy regularly, not for a £500,000 fleet of vans. Where the purchase is one large asset the funder wants that asset as security, and an asset finance agreement through the supplier is usually cheaper than anything unsecured. There's more on offering finance to your own customers in our customer financing explainer.

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If your supplier can't help

Not every supplier has a programme, and the ones that do don't always cover what you want to buy. The common version is a stock order you need to place now for a customer who won't pay you for two months.

If you're waiting on an invoice, a Flexi-Loan can cover the gap, and you can clear it with no early repayment fee once your customer pays. Borrowing also buys you something vendor finance can't: the money isn't restricted, so you can split an order between three suppliers, or pay cash and negotiate on price.

Our Flexi-Loan is a business loan with flexible repayment options of £1,000 to £1m. You choose a fixed term of between 12 months and five years, so you know the repayment schedule from the outset. Because there's no fee for repaying early, you can clear it as soon as the cash arrives – many of our customers only take out our finance for a few weeks, or even days. You have 30 days to draw down after approval, so the funding can be in place before you commit to an order.