Doing business with a large business trader may be better than directly with a small manufacturer.
This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection. We will explain how debt collection works in China below.
Many people do not recommend doing business with traders for their lack of manufacturing capacity.
In their opinion, the traders get your order, and then go to the manufacturer for goods in stock or place an order for the manufacturer to produce. Other than a small office and several business managers, they seem to have nothing else to show their performance capability.
However, a trader with large and frequent business may be much better than a small manufacturer.
For example, in Zhongshan, China, most of the garment factories have only a few dozen employees. These small and medium-sized manufacturers tend to have low-profit margins and tight cash flows. And they often have barely enough money to repay their debts.
If you sign a contract with such a manufacturer, you may not get much even if you claim against it for compensation.
However, suppose a trader regularly exports goods on behalf of dozens of manufacturers(or even more). In that case, its bank account will continue to hold a large amount of money it collects on behalf of these manufacturers. If you claim against it for compensation, you may get much more.
This is because they do not want a dispute with one manufacturer to involve other manufacturers in their transactions. Even more, they are willing to settle with you as soon as possible to prevent other manufacturers’ money in their bank accounts from being seized by the court.
Now, back to our question: which is better to be your counterparty, a Chinese trader or a manufacturer?
The answer is that, usually, it depends on their size. Whoever has a larger and more frequent business often has better performance capability. If they are about the same size, the trader tends to have better performance capability because they do not want to implicate other manufacturers they represent.
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Contributors: Meng Yu 余萌