Vendor vs Contractor | Important Business Relationships
In business, there are some common terms thrown around that are often not self-explanatory. In fact, many terms are used interchangeably which adds to the confusion. Today, we’ll explore the relationship between vendor vs contractor, how they’re used colloquially and what the differences are.
Vendor vs Contractor: Main Differences
The primary difference between a vendor and contractor is:
A vendor sells goods, usually products, to businesses and individuals. Vendors typically deliver physical goods.
On the other hand,
A contractor sells their time/services at a pre-agreed upon rate or completion milestone. Contractors can deliver physical completed work, but also commonly digital assets as well.
| Parameter | Vendor | Contractor |
|---|---|---|
| Definition | A vendor is an individual or business who sells products to consumers or other businesses | A contractor is an individual or business who provides a service to fulfill a predefined task or project |
| Objective | Vendor's goals are to provide a quality product with strong reliability and consistency | Contractor goals are to provide specialized services for an ad hoc project or ask. They are paid for their time, or pre-agreed fixed rate by project |
| What they do | Vendors usually create, or acquire products to sell and establish long term relationships with customers for recurring business | Contractors deliver by completing projects, for example, a graphic designer creates a logo for a company |
| Timeframe | Vendors usually aim to establish long term relationships with customers and rely on these relationships for recurring business | Contractors tend to have more short term engagements, and will serve multiple clients and deliver all kinds of projects |
If you’re a business owner and sell products to consumers, your business is a vendor. At the same time, you’re buying supplies, inventory and other essential business items from other vendors. Conversely, you may pay contractors to complete specific tasks and projects due to a time constraint, or need for specialized services. Don’t be confused by other terms in the industry like subcontractor, often these terms are use interchangeably. The differences we cover today can also apply to vendor vs subcontractor.
What is a Vendor? | A Critical Part of Supply Chain
A vendor can sometimes also be known as a supplier. To add to the confusion, every business can be a vendor itself and also needs vendors to buy from in order to operate. Sometimes, vendors are referred to as “venders” as well, so if you’re wondering the difference between venders and vendors—it’s just two different ways to spell the same word.
Put simply, any business that sells goods is a vendor, and other businesses they buy supplies/goods from are also vendors.
Some large businesses are completely vertically integrated, and thus may not need to engage with vendors for supplies.
Vendor Relationship in Practice | An Example
For example, if you’re a company selling custom embroidered hats to consumers, your business is a vendor. At the same time, you probably aren’t producing the hats in-house. Instead, you purchase blank hats from another business, also a vendor, and add on your embroidery which then creates the final product.
The company that you buy blank hats from is a vendor–and a critical part of your business supply chain. Most businesses will work with multiple vendors so they can diversify supplier risk, and have more options in case of shortfalls. A common misconception is that vendors are manufacturers–while vendors can be manufacturers, it’s less common for manufacturers to engage in the business of selling. Manufacturers want to focus on manufacturing, perfecting their production line to be as efficient and cost effective as possible. Thus, a vendor is closer to a distributor than a manufacturer in the overall supply chain.
A vendor’s aim is to establish long term relationships with customers and generate recurring business. Thus, it is essential for vendors to be reliable and deliver quality, consistent products on a regular basis. A vendor’s performance is evaluated based on consistency and quality goods.
What is a Contractor | A Growing Economy of Workers
A contractor is someone who provides services at an hourly, or pre-determined fixed price, on a project to project basis.
Generally, contractors tend to have more short term engagements, but contracts are also often renewed. The contractor economy, or gig economy, has been growing for a while now and is only going to mature more. In the age of information and the internet, it has never been easier to hire a contractor or contingent worker for specialized services or one-time engagements. Traditionally, contractors have also existed in large corporate consulting firms in a highly competitive environment. But today, when people refer to contractors, they tend to mean the gig economy, or even builders.
Contractors are an essential part of the modern workforce, filling in gaps where labor is short and are available at a pinch. In many cases, contractors can even provide better execution than traditional employees–many businesses employ contractors exclusively to complete projects and work. Contractors are robust and exist in almost every industry–you can be a freelance writer, model, construction worker, artist, photographer, just to name a few. Any job that you can think of, can probably be conducted on a contractor basis.
A contractor’s aim is to be efficient and complete projects exactly as defined in their short term engagement. A contractor’s performance is evaluated based on meeting the specific criteria as defined by the project and will vary each time.
Vendor vs Contractor | A Quick Summary
Vendors aim to establish long term relationships while providing quality products with a consistent track record
Contractors aim to deliver services and complete projects efficiently with precision in the short term
FAQs:
What’s the difference between a vendor and an independent contractor
A vendor is an individual or entity that sells goods to customers, establishing long term relationships and recurring business. A contractor is an individual who provides specific services in the short term with defined criteria and milestones.
Who is considered a vendor?
A vendor is technically any individual or entity that sells goods or services to customers, including other businesses. Vendors rely on long term relationships with their customers for recurring business.
What is the difference between a 1099 and a vendor?
A 1099 form is a summary form you send to individuals or entities you have paid. A vendor is an individual or entity whom you may have paid to receive goods or services from. Depending on the relationship, you may need to issue 1099 forms to a vendor if they are a contractor.
