For any business to succeed, there are a lot of parties involved. These parties offer different types of services for a business, whether it’s funding, the supply of products and services, supply of manpower, or others.
However, contractors and vendors are common examples of these services, and they can be structured as sole proprietors, partnerships, or corporations, creating a cost-effective supply chain.
While terms vendor and contractor might be confusing to average people, in the business world, they have a clear difference. So, we will help you understand the difference between vendor vs. contractor; while we explain their business models and assist you in deciding which one to hire.
Who are vendors?
Vendors are people or businesses who sell their products to the general public. Considering the vendor’s market is quite competitive, features such as price, performance, guarantee, and sustainability set apart one vendor from another. For that reason, companies engage more than one vendor to minimize the risk of unreliability.
Who are contractors?
These types of people have specific tasks within an organization. Additionally, these tasks feature a completion date, which might be contact-based, short term, or even have a periodical renewal. These positions include general contractors, consultants, defense contractors, school bus contractors, independent contractors, and many others.
Similarities and differences
When it comes to similarities, they both offer essential services to businesses and individuals. On the other hand, in terms of differences, a vendor might be a person who sells products, mostly similar products to various types of clients. However, a contractor is an individual who performs a specific task within an organization, while that task has a set completion date.
Line of work
A vendor can sell their products and services to both small and large businesses, while vendors mostly work with institutions and individuals who need some projects done. Performance is a significant feature for both vendors and contractors.
For example, in the case of vendors, factors such as quality and on-time delivery determine performance. On the other hand, when it comes to contractors, results after a completed task determine the performance. However, they also risk getting penalties or face legal consequences if they fail to deliver services based on specifications.
Additionally, vendors provide long-term services, while contractors work on short-time projects, which might be renewed after some time.
How does a vendor work?
To put it simply, the vendor is also known as a supplier. As we already explained, this is a person or a business that sells particular products or services. Sizeable retail store chain, such as Target, typically has a list of vendors from which they buy goods, at wholesale prices, and later sells those products in their store.
- The vendor is a broad term, but mostly indicates a supplier of goods and services.
- The vendor can sell products to another company or individual.
- Big store chains, such as Target, Sephora, and others, depend on many vendors to supply them with products.
- If a manufacturer turns raw material into finished products, then he is a vendor who sells goods at wholesale prices.
- There are some vendors, such as food trucks, who sell directly to consumers.
How does a contractor work?
Dentists, lawyers, doctors, veterinarians, and many other professions who offer independent services are classified as independent contractors. However, this category also includes numerous subcategories, such as freelance writers, subcontractors, actors, software designers, and others.
In the United States, contractors operate as sole proprietors or single members of LLCs. In that case, you are required to report all income and must submit employment taxes to the IRS. However, if they are sole proprietors, they don’t have to pay taxes on gross income.