Glossary
Inventory Loading
Inventory loading is a practice where distributors are required or strongly encouraged to buy more product than they can realistically sell or personally use, often to qualify for rank, a bonus, or continued active status. The Federal Trade Commission treats a pattern of inventory loading as a warning sign that a compensation plan is rewarding purchases rather than genuine retail sales.
Also called: inventory loading scheme, forced purchase
Regulated termWhy it matters
Inventory loading can leave distributors with unsold product and out of pocket costs while the company still books the sale as revenue, which is why regulators pay close attention to a company's buyback policy, its personal use and retail sale verification, and whether volume requirements can be met through actual customer sales.
Example
A distributor buys 1000 dollars of product she does not need, purely to hit a rank qualifying volume target for that period, then stores the unsold inventory in her garage.