The definition of trading company TCGA 1992 ““trading company” means a company whose business consists wholly or mainly of the carrying on of a trade or trades”. But what does “business” mean? If a company has retained profits and used them to buy an investment property so that 99.9% of turnover is trade and 99.9% of profit is trade but 90% of balance sheet is cash or investment property, is the “business” trade? The activity is definitely trade but the balance sheet is not.
Our Seven Reasons
- Trading companies understand customer service more so than factories. Their focus is entirely on the customer so it is often easier to communicate with them.
- They build the relationship so you don’t have to. A trading company will often work very closely with multiple factories and have very good relationships. They pass these relationships down to you in an effort to increase their worth to their customers.
- They are willing to go the extra mile when the factory won’t. If you want multiple items sourced for one product, they can help. If you need special package or special labeling, a trading company can help.
- Trading companies often use factories that are not big enough to have their own international sales team or export license. This means, they are working with factories that have lower prices than some easy to find competitors online.
- Trading companies have little overhead, so they can offer lower prices. Their markup is sometimes as little as 0.5%. Rent is cheap in China and trading companies don’t need to be huge. A team of four to ten workers at a trading company can have a much lower overhead than a factory of 100 employees or more.
- Trading companies are great for small quantity buyers. They often have great relationships with their factories or have product stock on hand, able to offer lower order quantities for the small sized importer.
- They offer more products and are often happy to send you additional product samples for free. I always tell my clients to request their trading company send them three of their best selling product samples in every shipment. This is a great way to source more products and do so quickly and efficiently.
Thinking Twice about Trading Companies
So before you run away from the idea that a trading company is just another middle man stealing pennies from your profits, understand the massive benefits they can bring. It isn’t uncommon for serious importers to only use trading companies because of how much more enjoyable they are to work with.
Want to see for yourself? Request trading companies be added to your sourcing report and we’ll be sure to include all the benefits they’ll have on your production!
Have you used a trading company in the past? How did they differ from factories you’ve also used?