Buyers comparing a sourcing agent with “going direct” usually argue about commission and whether the agent is adding a markup. Those matter. They are not the first question. The first question is legal and documentary: who is the seller on the PI, who receives the deposit, and who is on the hook if the goods are wrong? Get that wrong, and a cheaper unit price is an invoice from someone who cannot fix the factory.
This piece is not “agents are bad” or “factories are always better.” It is how to choose a structure you can put in writing.
1. Three common setups, not two
People say “agent vs factory.” In practice you see at least three:
- Direct factory — the PI is issued by the manufacturing company; you pay that company’s account.
- Trading company that admits it — they buy from one or more plants, invoice you, and handle QC and export. You are contracting with the trader, not the plant.
- Sourcing agent / buying office — they say they work for you, charge a fee or commission, and “introduce” factories. Sometimes the PI is still in the factory’s name; sometimes it is in the agent’s company; sometimes the deposit goes to a personal account. Those three are not the same deal.
An honest trader can be the right counterparty for mixed SKUs or small lots. An agent who never appears on the contract can still be useful — if the factory is the named seller and you know it. The failure mode is the hybrid: you think you hired help, but you paid a middle entity you cannot hold to the quality terms, while the factory never signed them.
2. What you are actually buying from an agent
A good agent sells process: shortlist, factory visits, sample chasing, inspection coordination, Chinese-language pressure. That service has a price. It should show up as a fee agreement with you, separate from the purchase of goods.
A bad agent sells access and then blurs the paper. Warning signs:
- deposit requested to a personal card or a company that is not on the PI
- refusal to put the factory’s full Chinese legal name on the order
- “we are the factory” in English and a trading-company business scope in Chinese
- no written statement of commission, and no statement that they will not take a second cut from the plant
If the agent is on your side, their compensation should be visible to you. Hidden markup plus an opaque payee is not agency. It is an undisclosed reseller.
3. When direct-to-factory is the worse structure
Direct is cleaner on paper only if you can do the work the agent would have done:
- you can verify the business license and the actual workshop
- you can specify quality in writing and inspect before the balance
- your order is large enough or simple enough that the plant will treat you as a real customer
- you are not mixing five categories that no single workshop owns
A first order of mixed home goods, no Chinese, no inspector, and a factory found on a marketplace is where “we cut out the middleman” often means you became the unpaid project manager — and still paid someone who might be a trader anyway.
4. Put the structure in the documents
Whatever you choose, the file should answer four lines in one place (PI plus a short side letter if needed):
- Seller of the goods: full legal name, matching the receiving account
- Place of manufacture: named, even if the seller is a trader
- Agent (if any): named, fee or commission, and a sentence that they are not the seller unless they are
- Quality and inspection: who is authorized to accept or reject, and when the balance is due
If those four lines cannot be filled without an argument, do not wire the deposit. The argument is cheaper now than after the container sails.
5. A simple way to decide
- One factory, one product family, you can inspect: contract the factory; hire an inspector or a fee-based agent who never takes the goods invoice.
- Many SKUs, small lots, you need someone local: a disclosed trader or a buying office on a fee can be rational — price the service, do not pretend it is factory-direct.
- Agent wants to be paid like a seller: treat them as a trader. Judge the price and the QC as you would any middle company.
The bottom line
Agent versus factory is a contracting problem first and a commission problem second. Name the seller, match the bank account, write the agent’s role as a fee if they are not the seller, and do not pay a party that does not appear on the PI. The cheaper quote is only cheaper if the entity you paid can actually make or remake the goods.
If your PI or agency agreement needs to state clearly who is selling the goods, I can prepare that in English and Chinese, and issue a stamped set under our translation company seal when you need one. See what this covers.
Agency and trading structures vary. Confirm the Chinese legal entity, business scope, and payment beneficiary before you transfer funds. This article is general sourcing guidance, not legal advice.