Can a trading company ship goods into my country before I pay for them?

A large enterprise can ship the product it will supply in the coming periods into an overseas warehouse in your country before the customer has paid anything, and collect once the customer has taken the goods; a trading company cannot match that, because the inventory and the credit would both sit with us. From your side the arrangement removes the waiting time and the replenishment risk together. It only works when the volume is large enough to carry the inventory and the credit. We would have shipped before we were paid - not a portion of it, the whole thing - and the exposure would sit across many customers at once, which is more than a company of our size can hold.

When should I buy from the factory directly instead of from a trading company?

When it is one product at real volume, because a factory's cost structure is its production and a trading company's is its operation. At volume the factory has no reseller margin, no consolidation cost and no second pair of hands between the plant and your warehouse, and a factory selling you its own product, on its own terms, at its own volume, is hard to beat. If it is a product the factory actually makes well, I would rather you bought it from them, and that has cost me orders.

What a Trading Company Cannot Do, and Why We Say So Here

Q: Should I buy from a factory or a trading company in China?

A trading company is the right answer for several products from several factories, for a product no single factory makes, for one point of contact on the documentation and the freight, and for a first order at a modest volume - and the wrong answer in exactly one shape of order, the one where the goods have to be in your country before you have paid for them. A single product at real volume is usually better from the factory, because you get the source directly. If your order needs the goods in your country before you have paid, it belongs with a large enterprise, and I will say so even though that costs me the order.

A trading company is the wrong answer in exactly one shape of order: the one where the goods have to be in your country before you have paid for them. A large enterprise can serve that order — it ships the product it will supply in the coming periods into an overseas warehouse in your country before it has received any payment, and collects once you have taken the goods — and we cannot match it, because the inventory and the credit would both sit with us until the money came in. We are a trading company, and that gap is not something anybody closes by working harder, so I would rather write it down here than let anybody discover it in a quotation.

Should I buy from a factory or a trading company?

The useful question was never which supplier is bigger, and the honest answer changes from one order to the next. A single product at real volume is usually the better answer from the factory, because you get the source directly. A basket of products, or a product no single factory makes, or a buyer who wants one point of contact for the documentation and the freight, is what a trading company is for. And there is one shape of order where it is the wrong answer, and I will name it here rather than in a quotation: the order that needs the goods in your country before you have paid for them.

That order is served by a large enterprise, and the arrangement is worth writing down precisely because it is the part we cannot carry. The clearest example is one I have had described to me many times and have never been able to match. A large enterprise can set up an overseas warehouse for a large manufacturing customer. It ships the product it will supply in the coming periods into that warehouse, before it has received any payment at all. The customer takes the goods, and the money is collected afterwards.

What the enterprise model actually requires

From the customer's side, that arrangement removes the waiting time and the replenishment risk together. The goods are in the country, in a place, before the order exists. That is a genuinely large thing and I am not going to dress it up as a sales line. For a buyer with steady consumption it is the difference between a supply chain and a series of separate transactions.

It also has a condition, and the condition is what makes it an enterprise arrangement rather than a general one: it only balances when the volume is large enough to carry the inventory and the credit at the same time. Somebody is holding stock in a country that is not theirs, extending payment until the goods have been consumed, and carrying the risk that the customer does not pay. At a scale where the inventory and the credit fit together, that is a service. Below that scale it is simply a hole in the balance sheet.

Why we cannot follow it there

We cannot, and the reason is not willingness. The cost is too high for us. And every part of the risk transfers onto our company rather than being shared with it: we would have shipped before we were paid. Not a portion of it — the whole thing. The customer still has the goods, we are still out of our money, and the exposure would sit across many customers at once, which is more than a company of our size can hold.

Those limits are structural. They do not respond to effort. I would rather say all of it now than watch somebody build a plan around a warehouse in their own country that was never going to arrive. The honest version of my position is short: I can tell you what an order needs, and if it needs that, it belongs with an enterprise, and I will say so.

There is a second thing in that arrangement which is easy to miss, and it is about who is protected from being wrong. An enterprise that ships before payment is exposed whether or not the customer is honest, so it can only offer the arrangement if it could survive a customer who pays late, or not at all. That capacity is built into what it charges for the goods. We do not have it, which means the only version of this we could offer is the one we could not survive.

None of this is a criticism of the enterprise model. It is a good model and it does exactly what it is meant to do. It is simply built on a balance sheet, and the sentence above is a sentence about ours.

What the enterprise is carrying is one large account, inventory held in the customer's country, and credit running from the moment of shipment until the goods are taken — at a volume that pays for it.
What we would be carrying is the same inventory and the same credit, spread across many customers, on a balance sheet never built to hold them, with the exposure arriving after the money has already gone out.

What a trading company is actually for

Not a smaller version of an enterprise. A different shape. Several products from several factories, for a buyer who would otherwise have to become the purchasing department for each one in turn. A product that no single factory makes. One point of contact for the documentation and the freight. And the beginning of a relationship, at a volume where we can genuinely be competitive on price, because we already hold the position with the factories we buy from.

That last point is only worth anything next to the first ones. If I described an enterprise as a trading company with more behind it, the gap would still be there at the moment the buyer needed goods in their own country, and they would find it at the worst possible time. Saying what we cannot do is not an argument against the advantage we do have. It is the condition of that advantage being real.

And there is a reason the arrangement has to run in both directions, which I did not understand properly until I was on the other side of it. A trading company that only protects itself has no reason to exist. If the only thing it does is reduce its own risk, then a direct purchase from the factory is better for the buyer and better for the factory, and the company in the middle is a fee. What it can add is a structure that protects the buyer as well, and that is a thing no single factory can offer a buyer who needs four things from four factories. That is the part I am being paid for: holding a position that has to be safe on both sides, where the company's own survival and the buyer's ability to trust the arrangement are the same requirement.

How that is put in practice is not mine to decide on my own. The structure depends on what the company can stand behind and what it has been authorised to offer, it has to be agreed with the company, and it belongs in writing on the order rather than in a general promise made on a web page. I can tell you that a two-sided arrangement is the right principle and that it is what the job is. I cannot sign up for a particular shape of it in advance of the order that would carry it.

Why I would rather lose the order

There is a version of this that costs me business, and I would rather name it than pretend otherwise. When I tell somebody an order belongs with an enterprise, some of that order goes elsewhere. I would still rather it went elsewhere. A buyer who has been told the truth about the shape of our company can plan around it. A buyer who has been told a comfortable version of it will discover the difference later, when planning around it is no longer possible.