Are you finally facing your fears by venturing into the business you have been dreaming about for a long time? Well, you’re in the right place you could be since this article tackles the most confusing thing you will have to deal with when ordering supplies from China – the difference in Chinese Suppliers with regards to them being factories or trading companies.
Differentiating these parties is important in helping you determine whether you’re dealing with a trading company or the factory. With most of the Chinese suppliers you’ll come across claiming to be factories, but their mode of operations pointing to something else, this article aims to clear the air for you.
Below are some of the ways of verifying the fact that the suppliers are not trading companies. But before we look at them, how about a look at some of the verification information you might have heard, but are inaccurate?
2 Commonly recommended, but inefficient methods
- Checking the registered capital for the supplier
While some people and blogs advise you to check the registered capital of the supplier for verification, noting that entities that are registered with large capital are factories and the ones registered with little capital as suppliers, this is not 100% true. The reason for this is that some suppliers are small-scale factories and their registered capital will be significantly low. At the same time, the registered capital for the large-scale trading company could be more than the capital for some factories.
With the minimum capital requirement for factories or companies in China at CNY 500,000, this doesn’t mean coming up with the ￥500,000 at the time of registration. You’re legally allowed to put in at least ￥500,000 in a duration of about ten years. Also, there is the fact that one could borrow this amount from the bank to deposit it in the company’s account then transfer it the next few days. Accessing one-day loans is pretty simple, and it costs a few hundred dollars (US).
- Checking the address on the samples
While asking for samples of the product before placing the order is a standard order of business when one needs to check the quality of the products and for the address of the supplier, it is not the most effective strategy in China. Ordinarily, it would be expected that the office address provided matches the registered address appearing on the business’ license making the supplier a factory; and a trading company if the addresses differ. But, this is not an applicable method when dealing in China (and several other companies) since most of the time, the factory’s address differs from the registered address. Also, most of the small-scale factories’ workshops are rented, and they might change the space in a few years, without updating the registered address.
And in other cases, the factory’s workshop and the offices could be divided into or based in different places or cities.
How then do you verify that the Supplier you’re dealing with is a factory and not the trading company? (Looking for Fashion Jewelry Manufacturer? – 6 Things Must Consider)
1. Checking the business license
(Related read: How to Check Chinese Company Registration Number? Step by Step)
If you’re looking for actual verification of the supplier’s status, you might want to check the Business Scope as it appears on the business license. Checking the scope of the business by the company is one of the easiest and the most direct ways of determining if you’re dealing with a factory or the trading company. The best but is that the supplier is unable to counterfeit these details.
If you’re dealing with a factory, the business scope will have words such as “produce” or “manufacture,” and these words will be absent from the trading company’s scope.
What if you cannot read Chinese? Find a friend to translate it or look for a freelance translator online. Translation will cost a few dollars.
2. Check the supplier’s MOQ
A factory often has a higher MOQ than that of the trading company. If you’re dealing with the factory, you will realize that the minimum order requirement is not negotiable. The trading company is, however, willing to accept a negotiation.
For example, SOQ jewelry has MOQ. For stainless jewelry, MOQ is 100. But all in all, it depends on the products.
TIP: Factories willing to manufacture big orders. Why? It takes the same time and energy to make big orders and small orders. If they do small orders, the factory will lose money. So, they have MOQ Requirements.
3.Go Through the Value Added Tax Invoice
Besides the business scope, the other reliable way of verifying the details of the supplier involves checking their VAT invoices. The reason for this is that the Chinese government offers a drawback in most export products to encourage exports. But for the exporting company to get the drawback, they must have the 17% VAT invoice. This invoice is only issued by the factory.
So, how do you get the invoice? Simple – mention to the supplier that you have partners in China who could help you apply for an export drawback and that you need a 17% VAT invoice. Should the supplier hesitate or refuse to this, then it means that they are either a trading company or one of the very small factories.
In other cases, a trading company might still send you an invoice (may be forged). To be safe ask for a clear invoice and ensure that the company name as eligible, and matching the name on their business license.
4. Go through the products’ catalog
Since factories are specialized in one type of product or various varieties so if you find that your supplier’s catalog has many products listed on it, it means that you’re working with a trading company. Factories are specialized. If you’re buying jewelry and the supplier’s catalog includes jewelry made of sterling silver, brass, gold, glass, rhodium, and titanium, you’re most certainly dealing with a trading company.
For examples: SOQ jewelry mainly focuses on stainless steel, alloy jewelry.
5. Check the supplier’s ISO 9001 Certification
While not all factories are ISO 9001-certified, most of the companies with this ISO 9001 Certification are factories – trading companies don’t need this certification.
Note, however, that some trading companies have this certification, with most of these certified trading companies specialized in a single product category and having solid relationships with their factories.
6. Check the Auditing Reports for the Factory
If you approach a supplier and they brag about supplying products to Walmart or a leading jewelry company like Tiffany’s &Co. You should ask them to send in the factory auditing report from the companies. Refusal or hesitation points to you dealing with a trading company rather than a factory.
And should the supplier send in the auditing reports for the factory, verify the company name on that report. You know that you’re dealing with a factory if the business name on the report matches the name on your business license.
Examples of what they ought to have passed are the Sedex(You can see the picture above), APM jewelry, BSCI(ID:384601), Walmart(Factory ID 36211854 ), Target, Kohl and such other audits. (If you want to see all the audits, please contact us for the account number and password).SOQ has passed these audits. Even though you don’t settle on them as your go-to manufacturers, you have to make sure they have internationally recognizedhttps://www.amfori.org/ inspections done to ascertain that they meet international standards.
7. Check the Supplier’s Location
You might not know this, but all the products manufactured in China have unique industrial areas.
For example, did you know that remote cars are produced in Chenghai City in the Guangdong Province? The reason for this is that this city has a complete supply chain for all the parts needed to make the remote-controlled toy cars.
Finally, you can find the information you need by asking your contact with a technical question.
A reply within minutes or hours (depending on how you communicate) means that you’re dealing with a factory while delays might mean that you’re dealing with a trading company.