A trading company is a business that specialises in buying and selling products, acting as a mediator between manufacturers and customers and organising the delivery or introduction of the products to a specific market.
As the entities that ultimately deliver the goods to the customer, trading companies also set up shops and storage facilities to avoid becoming dependent on a manufacturer's ability to supply products on demand. Another distinctive feature of trading companies is that they usually act as points of sale for a number of manufacturers; that is, one outlet sells the goods produced by a number of companies. Although this is not a requirement, in practice a shop selling the products of only one manufacturer is very likely to be an outlet of that manufacturer and not a trading company. Moreover, trading companies may arrange all the necessary procedures for the delivery of goods, including procedures for international trade.
Depending on the particular business, a trading company may act as either a retail seller, a wholesale store or a combination of both. A retail trading company sells products to the final customer and usually in comparatively small quantities. A wholesale trading company is aimed towards other businesses (including other trading companies) and usually sells products in large quantities for further distribution, e.g. in retail stores.
Functions of a trading company
The functions of a trading company depend on the particular business sector it operates in, but generally include the following:
Purchasing goods from manufacturers
Selling goods to companies and consumers
Storing goods for sale
Allocating goods in a retail chain
Setting up storage facilities and points of sale
Managing international trade operations
Making logistical arrangements for the delivery of goods
In general, the main function of a trading company is obtaining goods from manufacturers and delivering them to customers. In this regard, a trading company may undertake any tasks necessary to achieve that end. They may also be involved in negotiating and making use of land grants that allow a business to own, manage and develop a piece of real estate property, including land and buildings. Obviously, this is an additional possibility for a trading company as a legal entity, and not a major business function or task.
Types of trading companies
There are two primary types of trading companies:
B2B (Business-to-Business) Trading Company
B2C (Business-to-Consumer) Trading Company
B2B (Business-to-Business) Trading Company
The most extensive use of trading companies is as intermediary trading companies or
B2B companies. These businesses usually 1) specialise in a certain range of products or services, which they purchase from suppliers or merchants; 2) broker the products or services (i.e. add value and commission to the transaction); and 3) coordinate the logistics of delivering these products/services to the purchasing company (i.e. arranging the delivery and providing their own or affiliated transportation services).
B2C (Business-to-Consumer) Trading Company
B2C refers to selling products or services to the end client, and so the final destination of the trading company’s goods is usually a shop.
