After years of development and evolution, sourcing agents and purchasing companies have begun to play an increasingly important role in the operations of international supply operations. However, many start-ups and small importers are still confused and confused by purchasing agents, especially because vague and outdated information online misleads them.
Since then, we have collected and sorted out some of the main concerns and confusion that buyers have about purchasing agencies. Here we provide you with the most objective and detailed answers in this article.
1. What is a purchasing agent or purchasing company and how to differentiate between them?
A sourcing agent is a person or organization that purchases goods on behalf of a buyer and purchases products that are not available to the buyer. There is always a need for sourcing agents or purchasing companies in international trade.
Traditionally, sourcing agents sourced suppliers only for their clients. In fact, the services provided by a procurement agency can include selecting the right supplier, conducting price negotiations, following up on production, quality control, product compliance and testing, transportation, etc.
This is not to say that a purchasing agent or company should provide a full range of services. The scope of work depends on the agreement reached between the parties.
2. Purchasing agent or purchasing company?
In the global market, people often use these two words as if they mean the same thing. For example, if you want someone to do the purchasing for you, you might say – I need a “purchasing agent” or a “purchasing company”, but that doesn’t really matter. But in fact, these are two different concepts.
1) Purchasing agent
A purchasing agent can be an individual or hired to be your full-time agent. These personal sourcing agents rarely consist of one or two people, and they usually work out of a small office or home office.
In some cases, they may have worked in trading or sourcing companies for many years. These personal agents can be found on many freelancing platforms (such as Toopus, Upwork, etc.), some of which may also have their own websites on Google.
2) Purchasing Company
Purchasing companies, also known as purchasing agencies. It is easy to understand that a purchasing company has a professional purchasing agent team and organized apartments such as purchasing, quality inspection, warehousing, and transportation systems. They can integrate supplier resources more efficiently while serving different buyers.
Purchasing companies are usually located in industrial areas. For example, most Chinese sourcing agents and companies are located in Yiwu, Guangzhou, and Shenzhen, China.
Summary: Either a purchasing agent or a company is the link between buyers and suppliers, the key is which one you prefer to serve you.
3. What services does a purchasing agency provide?
Procurement service fees vary depending on the scope of work you order from the agency. To avoid any potential disputes, please clarify the scope and charges of your service before we begin working together. That is why I have dedicated a chapter to the services of sourcing agents and purchasing companies.
The following are the main services provided by most sourcing agents:
- Choose the right supplier
- Negotiate prices with suppliers
- Production follow-up
- Product Compliance and Testing
- transportation and logistics
1) Purchase product suppliers
Verification and selection of suppliers that meet customer requirements is an essential service for every purchasing agent. They will negotiate with suppliers on behalf of buyers to obtain the best prices and confirm production details.
Some buyers may, however, wonder whether they should receive supplier information from their purchasing agent or company. Some people even believe that agents are cheating them or making black money by not providing them with supplier information.
It depends on the buying agent’s service model whether supplier information is provided to buyers.
2) Personal purchasing agent
Some personal sourcing agents can be found on the Internet, and they are usually paid a fixed salary (hourly/day) or may be paid a fixed commission for projects. This kind of cooperation is like finding yourself a purchasing assistant abroad.
Literally, the buyer pays for the supplier’s information, so the agent is obliged to provide the supplier’s contact information to his boss, the buyer, who himself will communicate with the supplier to negotiate the price.
3) Purchasing company/agency
If it is a purchasing company/agency, they will not provide the supplier information directly to the buyer. Here are the two main reasons.
First of all, these high-quality suppliers are their accumulated resources (including those resources that cannot be found on B2B websites), which is why you can get competitive prices from purchasing companies.
Secondly, they charge service fees based on a certain proportion of the total value of the goods, that is to say, this is their profit model. (I will discuss further how sourcing agents/companies are charged later in question 5).
Although they do not disclose the contact information of the factory to buyers, they are willing to take buyers to visit the factory so that buyers have a certain understanding of the factory’s production output.
4) Subsequent production, QC, and shipment arrangements
Once a suitable supplier is found, production of the goods can be arranged. The purchasing agent/company will help coordinate with the factory and monitor the entire production process to ensure that the factory completes production on time and the goods are of good quality.
They will also provide quality inspection services and work with quality inspection companies to inspect finished products and minimize defective products before shipment.
The final step is transportation arrangements, which require a high level of expertise. In addition to bargaining for the most competitive freight, they also need to tell you what documents and product certificates are needed for customization, such as CE, RoHS, FDA, COC, etc.
Most sourcing agents or companies also provide these services. You can choose any part of their services based on your decision.
5) Other services
In addition to the above-mentioned mainstream services, some large professional procurement companies also provide private-label solutions, including but not limited to the following aspects:
- customized product
- Custom packaging/labeling
- Free product photography for e-commerce
4. Who needs a purchasing agent or purchasing company?
The following are situations where a purchasing agent is required.
1) People who have no important experience
Importing from overseas involves many complicated steps, such as finding the right supplier, following up on production, product testing, quality control, handling shipping, etc.
If you have no overseas purchasing experience, you can find a purchasing agent/company to help you start your first import journey. People who need to handle multiple product categories
Choosing two reliable suppliers for one product may require you to contact more than ten suppliers. Suppose you are looking for 10 products, then you need to contact and verify at least 100 suppliers. In this case, the purchasing agent/company can not only complete the tedious work more efficiently but also consolidate all the goods you need.
2) Large retailers and supermarkets
Does this mean that large, well-funded, and experienced importers don’t need sourcing agents? Of course not! Large businesses also need them to better manage their supply chains.
Take a supermarket chain as an example, they need to buy thousands of products. It is almost impossible for them to go to every factory in person and buy every product.
Retail giants like Walmart and Target source products through sourcing agents or trading companies
3) Strength of sourcing agents and purchasing companies
Reliable sourcing agents/companies play a vital role in international trade procurement.
1. They can find suppliers with competitive prices and good quality.
A good purchasing agent can help you find a capable and reliable manufacturer. Because good agents/companies have accumulated a lot of qualified factory resources that you may not find online.
2. Can improve procurement efficiency.
A local sourcing agent/company can help you overcome cultural and language barriers. He clearly knows what you want, negotiates product details with suppliers, and delivers the information to you in fluent English, greatly reducing communication costs.
3. Importing from overseas can reduce your risk.
A good purchasing agent/company must have extensive experience in handling product production, quality control, compliance certification, import and export process rules, and international shipping.
5. How do sourcing agents or purchasing companies charge?
Since there are thousands of sourcing companies and agents around the world, there are no specific charges. Procurement agency fees vary greatly depending on service scope, cooperation method, product category, order amount, etc.
To give you an overview of procurement services fees, I’ve outlined three common procurement agent fees below.
1) Fixed salary for each project or a certain period of time
Many individual sourcing agents charge a fixed salary per product or for a specific period of time (weeks/months). They typically charge less than $50 per product. Quite a deal, right? You can discuss your products with suppliers and establish direct business relationships.
The disadvantage is that these agents are often unprofessional and the suppliers they find are often not the most cost-effective.
Some experienced buyers prefer to hire a personal full-time purchasing agent for a few weeks or months to complete simple purchasing tasks such as sourcing, translating, and communicating with suppliers. If you want to import from China, you can hire a full-time China purchasing agent to work for you for about $800 per month.
2) No surcharge but you can earn the price difference
Many individual sourcing agents or purchasing companies use this type of fee. Usually, in this case, the purchasing agent can provide more competitive prices or better quality products to good suppliers, which buyers are unlikely to find through normal channels (such as some online wholesale websites).
In turn, if buyers can find competitive prices on their own, they will not consider such a purchasing agent.
3) Based on the value of the product, there is a percentage service fee
Charging a percentage of the entire order value is the most common method among purchasing agencies or companies. Why? Because they usually provide other services such as tracking production, quality control, transportation arrangements, consolidation, etc., they will charge a certain percentage of the value of the goods as service fees.
In China, the general service fee is about 3-10% of the total order value. Another point is that product category and order size have a big impact on this percentage. For example, if the order is for a competitively priced product with high demand, or if the order value exceeds $600,000, the service fee may be approximately 3% of the order value or even less.
Lessons learned: Regardless of the charging method used, agents should be evaluated on their ability to reduce overall procurement costs, improve procurement efficiency, and ensure product quality.
6. Analyze purchasing agent problems
You may have heard a lot about the dark sides of sourcing agents, such as accepting kickbacks or bribes from suppliers who lack industry experience, which discourages buyers from choosing a purchasing agent. This section will analyze the purchasing agency issues that concern you.
1) Kickbacks and bribes from suppliers
First, kickbacks or bribes come from individual sourcing agents or purchasing companies. If the buyer and the purchasing agent agree on product prices and supplier information transparency at the beginning of their cooperation, but the agent still asks for kickbacks from the supplier, it is an illegal or unethical practice.
To put it in perspective, kickbacks typically occur on large orders of tens of thousands of dollars. For small orders of a few thousand dollars, most sourcing agents won’t bother with kickbacks or bribes.
Compared with 4-5 years ago, the phenomenon of kickbacks is much less now, especially in the daily necessities industry. This is because buyers can find suppliers directly through many channels, such as B2B websites including Alibaba, Made in China, and DHgate.com.
They can make a comprehensive comparison themselves and then measure whether the product prices and service commissions provided by the sourcing agents are reasonable.
2) The service fee seems low but is actually high
Many sourcing agents and companies attract customers with low service fees or even free trial orders, but buyers eventually find that the overall purchasing cost (product cost + shipping cost + time cost) is not low at all. Additionally, even if an agent claims they perform quality checks, buyers may receive unsatisfactory merchandise.
In fact, most sourcing agents can provide lower service fees, but this does not mean providing you with good product purchasing services. They’ll offer a higher price for the product to compensate for their profit, but you don’t even know it. Customers who know nothing about the product can easily be fooled.
No business is charitable. I can tell you with certainty that compared to the slightly higher fees charged by other sourcing agents, no purchasing agent can charge lower service fees, give the most reasonable product quotations, and provide high-quality and complete services.
This is because service fees must be charged in accordance with industry rules. Therefore, service fees should not be the only criterion when you choose a purchasing agent to work with.
3) Unprofessional or inexperienced buyers are common
In recent years, many sourcing agents have sprung up, but most of them are not professional and have no experience purchasing from China. They just knew little about the industry and started a business with just a few people and almost nothing.
They have no concept of purchasing services and do not expect long-term cooperation. They only do one-time business and the quality of service cannot be guaranteed. If you are importing from China for the first time and have no experience choosing reliable sourcing agents, it is not surprising that you find unprofessional or inexperienced sourcing agents.
As mentioned above, the range of services provided by procurement agents requires the accumulation of time, experience, and resources, including a lot of cooperation, trial, and error.
With such accumulation, they can find the best products and suppliers for customers from so many factories and suppliers. However young or unprofessional sourcing agents cannot provide or fulfill these resources.
There are good and bad sourcing agents in this industry, but you don’t have to be afraid to try sourcing services. Excellent sourcing agents play an important role in your supply chain management, helping you obtain competitive product prices while taking care of the follow-up process because good service is the core competitiveness of their business model.