Trading company vs factory: what each is and how to tell

When you find a supplier on a B2B marketplace or at a trade fair, it might be the factory that makes the product, a trading company that buys from factories and sells on, or something in between. Neither is good or bad in itself. The trouble starts when you do not know which one you are dealing with, because that changes the price, who controls the quality and who you can hold to account.

This guide is general. It describes how the two kinds of supplier work and how to check, not any particular company.

What a factory is

• A factory makes the product itself, on its own production line, and usually specialises in one kind of product and material: a wire and sheet metal workshop, say, rather than one that also makes textiles.
• Even a real factory rarely makes everything. Most buy in some parts, such as handles, packaging or fasteners, and many send work to other factories in busy periods. So the useful question is not just "are you a factory?" but "which parts do you make here?"

What a trading company is

• A trading company does not make the goods. It buys them from one or more factories and sells them to you, a bit like a wholesaler or distributor.
• A good one earns its place by finding the right factory, handling the English and export paperwork, combining products from several makers, and following quality. A poor one just adds a margin and passes messages along.

The grey area

• Some factories also sell related products made by partner factories, so they act as a factory for some lines and a trader for others.
• Some trading companies work so closely with one or two factories that they run them like their own production.
• Exporting does not prove anything either way. China cancelled its separate foreign trade operator registration in the December 2022 amendment to the Foreign Trade Law, and the current law, revised in December 2025, lets a company handle foreign trade for others within its business scope. So a factory may export through an agent, and the exporter named on the shipping papers may not be the maker. Asking "do you have an export licence?" tells you little for ordinary goods like BBQ tools.

Pros and cons

Factory

• Pro: no middle margin. Industry sources say a trading company will almost always cost more than the right factory.
• Pro: a direct line to the people who set up the line, so changes to material, finish or packaging are easier to agree and check.
• Pro: you know where your product is made, which helps with inspections, repeat orders and any claim.
• Con: a narrower range. A factory that makes grill baskets probably does not make your aprons or chopping boards.
• Con: minimums are often higher, and a big factory may give a small order low priority.
• Con: English and export experience vary, and you may have to manage more of the paperwork and freight yourself.

Trading company

• Pro: one supplier for a mixed range, with one contact, one invoice and often one shipment.
• Pro: often better English and more export experience.
• Pro: may take smaller orders, and can reach small factories that cannot export on their own.
• Con: the price includes the trader's margin, and you may not be told how much.
• Con: less visibility of who actually makes your product, unless the trader tells you and puts it in writing.
• Con: the trader may switch factories between orders, so a good first batch can be followed by a different one.
• Con: if something goes wrong and you never knew the factory, it is harder to fix at the source.

How to tell which one you are dealing with

• Ask for a copy of the business licence with the company stamp (chop). The EU SME Centre's advice is to stop negotiating if a company will not provide one.
• Use the Chinese company name. Chinese law requires the licence to show the name, legal representative, registered capital, address, business scope, date of establishment and the 18-character unified social credit code, and the same details are published on the official National Enterprise Credit Information Publicity System. The EU SME Centre points out that English company names have no legal standing in China. Check a supplier before a deposit walks through the lookup.
• Read the business scope (经营范围). Every company registers one, worded from an official catalogue. Words such as 生产 (production), 制造 (manufacturing) or 加工 (processing) of metal products suggest a maker; a scope limited to 销售 (sales), 批发 (wholesale) and 货物进出口 (import and export of goods) suggests a trader. Treat it as a strong clue, not proof: a scope says what a company may do, not what it does.
• Compare addresses. Note the registered address on the licence and the address they say the factory is at. If they differ, ask why; a factory may be registered at one site and produce at another, or the "factory" may belong to someone else.
• Ask which processes are done in house: cutting, bending, welding, polishing, plating and packing. A maker answers in detail and can show each step.
• Look at the range. A supplier offering BBQ tools, phone cases and furniture on one storefront is almost certainly trading.
• Ask for a live video walk-through of the production floor making your kind of product, or pay for a site visit or factory audit by an independent inspection company, as the EU SME Centre suggests.
• Check every name matches. The licence, the contract, the proforma invoice and the bank account you pay should all name the same company. The EU SME Centre lists a bank account in another company's name, or in a person's name, as a red flag.
• Check certificates. If a supplier shows a quality system or test certificate, check the company name and site address on it, and check its status with the body that issued it.
• Just ask: "Do you make this yourselves? If not, which factory does, and will you name it on the contract?" A good trading company will say what it is.

Decision rules

• Many different products in small quantities, and little time to manage suppliers: a good trading company can suit. Treat it as a service provider, ask it to name the factory for each product, and agree in writing that the factory will not change without your approval.
• One product, made to your specification or in growing volumes: deal with the factory, or at least know it by name and inspect there.
• Either way, sign with the licensed company you pay, pay only that company, and tie the balance to an inspection.
• If a supplier says it is a factory and the evidence says otherwise, walk away. The issue is not the business model; it is the honesty.
• If your design or tooling is new, settle who owns the moulds and drawings in writing before you share them. See protecting your design.

Common mistakes

• Assuming a supplier is a factory because its listing or website says so.
• Checking only the English name.
• Paying a bank account that does not match the company on the contract.
• Getting a great sample from a trader, then a different factory's goods in bulk.
• Treating a trading company as a bad sign in itself, and missing one that would save you time.
• Asking about an export licence instead of asking who makes the product.

Next step

Check the licence and bank details with check a supplier before a deposit, send a full brief with the RFQ template, and inspect before the balance with the pre-shipment QC checklist.

Common questions