7 Ways to Verify Chinese Suppliers Are Factories, Not Trading Companies – Part: 2

7 Ways to Verify Chinese Suppliers Are Factories, Not Trading Companies

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Part II: 7 Ways to Verify Whether Your Supplier Is a Factory

1. Check the Business License

The most important part is “Business Scope”  when checking a supplier’s business license. This is the easiest and most direct way which your supplier cannot counterfeit. A factory’s business scope must include words like “manufacture or produce” ( Produce, Processing & Manufacturering or Fabrication), which a trading company’s business scope won’t have.

Send supplier’s business license to a reliable friend who knows Chinese well for a check, or you can go to Elance to find a freelancer for translation, which only costs several dollars.


Business Scope is the most important part when checking a supplier’s business license

2. Check the Value Added Tax (VAT) Invoice 

This is the best way to verify suppliers. Chinese government offer drawback for many kinds of exporting products in order to encourage export. But if a company want to get export drawback, 17% VAT invoice is must needed which can only be issued by a factory.

So there is the way: tell the supplier that you have a partner in China who can help you apply for export drawback, so ask for issuing a 17% VAT invoice. If the supplier refuses or hesitatesto reply to you, they probably are a trading company or a very small-scale factory.

But if they agree to issue the VAT invoice, you can ask for a clear picture of the invoice made before, and check carefully the company name on it. If it is the same name on the supplier’s business license, then it must be a factory.


A sample of VAT Invoice

3. Check Supplier’s MOQ

Factory’s MOQ is normally higher than trading company’s, and it’s almost the common sense in trading. So that you can verify your suppliers by testing if they can sell you fewer quantity products.

For example, you are finding a supplier for purchasing 5,000 mugs, you can tell the supplier that you are buying only 300 pieces for a try, and will place big order in the future if the quality is good. They will say no if you are dealing with a factory as their MOQ won’t be less than 1,000 pieces. But a trading company may accept your 300 pieces order.

4. Check the Products Catalogue

A factory usually is specialized in one or several kinds of products, if there are lots of kinds of products in your supplier’s catalog, then it’s more likely to be a trading company.

I know a stainless steel vacuum cup factory (200 workers, around 70Km away from my office) who is among the TOP 10 in Chinese vacuum cup industry. Except for vacuum cup, they also sell glass made cups, but these are supplied by other smaller factories. This company’s glass made cups price is even higher than other trading company quoted.

But if your cup suppliers supply stainless steel vacuum, glass, plastic cup, and mug, etc. they are not factories.

5. Check the Factory Auditing Reports

If the supplier told you that they have supplied products for world companies like Walmart, then you can require them to send you the factory auditing report.

If they refuse or hesitate, then they probably are trading companies. If they send you the factory auditing report, you need to check the company name on the report. If it’s the same name as the one on Business License, they must be a factory.

6. Check the ISO 9001 Certification

Not every factory has ISO 9001 Certification, but most companies who have this certification are factories because the trading company has no need to have it.

But still some trading companies get this certification, and all of them are only specialized in one product category and have a solid relationship with their factories. I know several this type of trading companies, and I have to say working with them will be no much difference from working with factories, even on price.

7. Check Where Supplier Is Located in China

All products have their own industrial areas in China, and let’s take RC (Remote Control) toy cars as an example. I wrote in another article about how to import toys from China and mentioned all RC toys are mostly produced in Chenghai City, Guangdong Province.

Because this city has the complete supply chain for all parts of RC toy cars, such as motor, remote controller, and wheels. The factory only needs to design a car’s shell and packaging, then assemble all parts together. Producing RC toys in any other cities will be more complicated and higher cost than in Chenghai, so factories will be not likely located in other places.

If your suppliers are not located in Chenghai, like in Guangzhou or Shenzhen, they are probably trading companies. Maybe there will be some high tech RC toys factories located in Shenzhen, but very few.


Post time: Feb-12-2020