Should we only buy products from suppliers with an export license? Not necessary. As a professional sourcing agent, we don’t mind working with factories without an export license. If you found a direct factory but the factory doesn’t have an export license, then how to deal with it? In this article, I will let you know about what an export licnese is and how to buy products from a Chinese direct factory without an export licnese.
What Is An Export License?
An export license is a document issued to an enterprise by the Chinese government to prove that the enterprise is qualified to export. It permits the goods to be shipped out of China. If your Chinese supplier doesn’t have an export license, then the goods can’t be cleared by Chinese Customs. Therefore, most suppliers engaged in export business must have export licenses.
Can You Cooperate with Factories without Export Licenses?
Although for importers buying products from manufacturers with an export license is preferred, you can’t say that suppliers with the license must be qualified, or you cannot say factories without an export license definitely can’t produce high quality products. Sometimes, factories are good enough and the domestic market offers good profits. These factories may not care too much about the overseas market. Thus, it’s ok to cooperate with suppliers without export licenses sometimes as long as you find good ones. And the following are some pros and cons of working with suppliers without an export license.
If your product is cost sensitive, then you can get a lower price from these suppliers without export licenses, since many of them are direct component suppliers or subcontractors to other companies which are engaged in export business. Thus, the price you get from these direct factories is most likely the most competitive.
Lower Competition Risk
Factories without an export license can indicate that they are not interested in selling products on your target market, they just focus on producing products for the domestic market. On the other hand, factories with export licenses can sell products overseas on their own including your target market. Therefore, you have lower competition risk if you buy products from direct factories without an export license.
Factories without export licenses are normally very small, not saying they are not good, these factories may have been in business for decades. Due to small scale, these factories tend to have longer lead times than larger manufacturers.
Export Agency Involved
Since the direct factory don’t have export qualifications, they have to find an export agency to help them ship the products out. Thus, the Proforma Invoice initially sent by the direct factory now is changed into the export agency. In other words, the beneficiary on the Proforma Invoice for your payment is going to be the export agency instead of the direct factory. You have to transfer your money to the account belonging to the export agency. This does increase the complexity of the transaction to some extent.
Tips for Working with Direct Factories without Export Licenses
Conduct Background Check On the Direct Factory
Before cooperation, you can hire a third-party agent to conduct factory audit for you. Factory audits can be very helpful in screening potential suppliers. They can help you check the company’s production capacity, current business status, bad credit records, etc.
Sign A Clear Contract
As I mentioned above, the beneficiary of your payment is the export agency instead of your direct factory. If something goes wrong in the future, how can you prove that the supplier should take responsibility for your loss as the factory claimed that they didn’t receive your payment since the export agency will definitely take no responsibility. In order to protect your money, you need to sign a clear contract. In particular, the following two points should be clearly stated in the contract.
- List all the information of the export agency in your contract including the company name, bank account details, address.
- State that the supplier must accept payment once the specified export agent account has received the payment to prevent suppliers from using any excuse to avoid responsibility.
If you find a suitable direct factory with a significant price advantage and right quality, then it’s ok to buy product from this factory though it has no export licenses as long as you keep the mentioned tips in mind.