I have heard that small factories will do this. Is that right?

It is right, and it is the reason the practice exists at all. A small factory will do it because the person selling to you is probably the person running the place, and they will do it on the side. That is also where the risk moves: the goods may be paid for personally, or collected through an account the salesperson controls, and a buyer is then trusting a person rather than a company.

Why is the money side of it a problem for a small factory?

Because your payment arrives at the factory and the factory then has to settle with other suppliers, and in between there is foreign exchange, tax treatment and the working capital of a transaction that is not their usual business. A small company trying to do that in addition to its own production is carrying a risk its balance sheet was not built for.

What does that mean for me as a buyer?

That the arrangement you are offered should be looked at for what it actually is. If the products are being bought for you on the side by a salesperson, the questions that matter are about the money in between - who is collecting it, who carries it, and what happens if something goes wrong at your end. Those questions are legitimate and they are worth asking before the order, not after.

Why a Big Factory Will Not Buy Products for You

It is almost never a refusal. When a large factory will not buy additional products for a customer, the answer has usually been decided before the question arrives, and it was decided by somebody thinking about their own operation rather than about you. That is worth understanding on its own terms, because the reason is arithmetic, and the arithmetic is the same in every factory that has ever told me no.

Why the answer forms before the question is asked

A factory makes one product, or two. Its business is selling what it produces, and everything it has — the plant, the people, the way money comes in — is built around that. A customer who then asks it to also source something else is not asking for a favour. It is asking the company to take on a second business, in a market it does not operate in, at a volume it cannot know in advance, for a customer it does not yet have a relationship with.

Our own position is the mirror image of that, and I say it here because it explains the difference better than any amount of theory. We are a trading company. Our single biggest advantage is that we have a lot of suppliers and can supply a lot of different products, and that is what solves the minimum order quantity problem. The advantage exists for one reason: sourcing other people's goods is the job, not something we do sideways from something else. A factory doing it as a favour is working at the edge of its business, and that is exactly where the answer comes from.

Why the operating cost never lands in one place

I know this from the inside rather than from a conclusion. At the company I worked for before this one, there was no professional purchasing function to handle that part of the work. I could take it on myself as sales, and the moment I did, the operating problems arrived.

The customer's payment comes into one company account, and our finance then settles with the other suppliers. Sitting between those two events is currency conversion, tax treatment, and a chain of small things that are individually unremarkable and collectively are not. Then there are the goods themselves: a place to keep them, somebody to watch them, and our own workers to load and pack them. Every one of those would be costed in an operating model if somebody sat down and built one.

Nobody sits down and builds one. That part of the cost basically cannot be fully accounted for — not because it is invisible, but because it is a nuisance and it needs dedicated people to carry it. That is the whole reason. A large factory in particular will not usually go and buy products for a customer, because the money, the currency, the tax and the handling all land on the factory and there is nowhere for them to sit. A cost with nowhere to sit is not negotiated away. It is declined.

And it is the large factory in particular that says no, which is worth stating on its own. The larger the operation, the more of it is already allocated: the space is committed, the people are on other products, and the overheads a favour would create have nowhere to hide in the accounts. A small factory has slack, and slack is precisely what lets it say yes.

From outside it is a reasonable question: can you also get me this other item, from suppliers you already have, at the same time?
From inside it is a purchasing department that does not exist, money coming in and going out through two sets of books, a currency and a tax treatment to manage, storage nobody owns, and packing labour that takes people off other work.

What happens when a small factory says yes anyway

A small factory will do it. The reason runs the other way: the person selling to you is probably the person running the place, and they will do it on the side. The answer is yes because there is nobody standing between the decision and the work.

The side has its own structure, and it is not the company's. Either the salesperson does it privately, which raises the question immediately of how the money is collected, or they have an offshore account of their own — and at that point the risk changes shape. Can a buyer rely on the salesperson rather than the company? Who is carrying the money in the middle? If something goes wrong at the customer's end, who is it happening to? I am not raising these as traps for a buyer to set. They are the actual content of the arrangement once it has left the company's balance sheet, and I have never found a way to answer them on somebody else's behalf.

It is worth setting the two answers beside each other, because they look like opposite answers to the same question and they are not opposite at all.

What I take from it

The thing I take from this is that a no here is a fact about an operation, not a fact about you or about the factory's character. That matters because a fact about an operation is stable. It will not change because the order is bigger or the price is better or the relationship has been good for three years. What is missing is a function, not an attitude. A person deciding whether to say yes moves with incentives; a company with no purchasing department does not move at all.

And when the answer is yes, my attention moves away from the goods and towards the arrangement, because that is where the difficulty has gone. I want to be exact that this is a description and not a method. I do not have a procedure for judging somebody's side arrangement and I would be suspicious of anybody who claimed one. What I have is a fairly clear view of where the difficulty lives, and in my experience knowing where it lives is most of what there is to know.