channel stuffing

Channel Stuffing

A deceptive business practice used by a company to inflate its sales and earnings figures by deliberately sending retailers along its distribution channel more products than they are able to sell to the public.

Notes:

By channel stuffing, distributors temporarily beef up their accounts receivables. However, unable to sell the excess products, retailers will send the excess items instead of cash back to the distributor, who must readjust its accounts receivable and ultimately its bottom line. In other words, stuffing always catches up with the company, because it cannot maintain sales at the rate it is stuffing.

This is usually done fraudulently to raise the value of the stock. Channel stuffing is illegal.

See also: Accounts Receivable, Channel, Inventory Turnover

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channel stuffing

Artificially inflating current sales and earnings by shipping more goods than would normally be ordered. For example, an appliance manufacturer may inflate revenues and earnings in the current accounting period by shipping to retail stores more refrigerators, stoves, and dishwashers than the stores are likely to sell. The practice of channel stuffing borrows revenues and earnings from the future because overstocked customers will reduce orders in future periods.