Trading Company: Definition, Types, and Characteristics

Companies fall into one of two categories in the industrial world: trading companies or non-trading companies. A trading firm is a business that buys and sells commodities with the intention of making money off the price differential.

Trading companies are another name for trading businesses. We shall go into great detail in this talk to clarify the significance, traits, categories, and distinctions between the actions of trading companies and those of individual traders.

General Trading Company Definition

The English word “trading firm” can be taken to mean a trading company. A trading company is a business that generates income through buying, holding, and selling activities, as was previously stated.

The difference between the selling price and the purchase price is where they make their profit. Remember that the commodities or products that this trading corporation purchases do not receive any value addition.

As a result, the trading corporation will keep the commodity before reselling it for more money than it was originally purchased for. They often sell a variety of goods, including agricultural products, semi-finished goods, finished goods, and raw materials that are still in the raw state.

Features of Trading Companies

Companies of all kinds, including those that engage in trading and those that do not, have unique qualities.

For people who are unable to tell the difference between a trading firm and a non-trading company, the following are some traits of a trading company:

  1. In addition to incurring expenditures for the purchase process, business activities include purchasing items, placing those goods in warehouses, maintaining inventories, and selling those goods.
  2. The trading company doesn’t engage in any production procedures or tasks that include modifying and enhancing the purchased goods.
  3. The overall amount of profit they make is calculated by deducting the total number of purchases of products and the operational budget from the total amount of items sold.
  4. Inventory or stock accounts are used by trading organizations in balance reports, income statements, and HPP calculations.

Trading Company Types

Trading firms or trading firms can be distinguished based on the products they deal as well as the distinct consumer types. The following sorts of trading businesses are included in order to help you learn more about them:

Using trade goods

Trading companies are classified into two categories based on the products they acquire and sell, namely:

Trading Company for Manufacturing Raw Materials

A corporation that trades in production raw materials buys and sells raw materials that the buyer must reprocess before using them to create a completed good. These raw materials will be used in the production process and processed with specific equipment and methods to create finished goods that are ready for use.

Trading firms for production raw materials typically target businesses operating in the industrial sector. Raw materials are undoubtedly necessary for industrial businesses, which also operate a business-to-business (B2B) system.

Companies that trade in production raw materials may trade the following products:

  1. Wood will be utilized to make construction materials, furniture, and other items.
  2. Cotton that will be utilized as a basic material to make yarn
  3. The raw source for the manufacturing of cooking oil will be palm oil.
  4. Trading Company for Finished Goods
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There are numerous trading firms that deal in goods that are prepared for usage. In order for the products they sell to be used by final customers. Examples of products that this kind of trading company might sell include:

  1. Air conditioning in computers and smartphones
  2. Refrigerator \sClothes
  3. Food, beverages, and staple foods

This finished goods trade company’s type of business is more focused on a business to consumer (B2C) system, or a business system that sells directly to end-level consumers.

2. By Type of Consumer

Trading companies can also be separated based on the type of client. The following are a few different sorts of trading firms:

Wholesalers

Wholesalers are the first category of trading company; these businesses purchase goods in bulk straight from producers or factories. This business will also resell the enormous amounts of goods it purchases.

This kind of trading firm is equipped with a warehouse big enough to hold a lot of product inventory. One illustration is a distributor, where one can purchase something at a lower cost than if they were to do it retail.

The majority of the time, intermediaries that need big amounts of product stock to sell directly to end-level consumers buy products from wholesalers and resell them to them.

Middleman (Middleman) (Middleman)

The third category of trading company occupies the space between a wholesaler and a retailer (retail trader). The primary responsibility of intermediate traders is to purchase products in bulk and then resale them to smaller-scale shops.

Therefore, these middlemen do not offer the goods they purchase to final customers. Wholesalers are an example of a merchant who sells their goods to retailers through an intermediary.

Trader in retail (Retailer)

A trading firm is, in essence, a business that trades all kinds of things. Retail traders and retailers make up the final category of trading firms. Their primary business is purchasing goods in lesser quantities and reselling them to end users.

Since end-users are the intended market, companies will either offer things at retail or in units. Retail businesses include, for instance, supermarkets, minimarkets, and so forth.

Activities of Trading Companies

Trading companies or trading companies engage in operations that are very distinct from those of other types of businesses. Of course, businesses in the trade sector conduct completely different operations from those in the industrial sector.

For people who don’t know, trading companies’ primary activities include the following:

Place an order

The first major task is to spend money on a variety of items that the market or consumers want or need. The corporation will decide what kinds of goods it can trade by purchasing this item.

The choice of the product category will have a significant impact on the trading company’s ability to remain in operation. The issue is therefore highly dangerous and needs to be thoroughly researched and thought through.

Trading firms can purchase goods in the form of assets or services in addition to goods in the form of products or services.

Cost Charges

The corporation will indirectly pay costs to execute the transaction while buying a goods. Payment for product purchase transactions, debt payments, warehouse rent, tax payments, employee salaries, and so on are a few examples of expenses paid in a trading organization.

The recording of various cash distribution transactions is necessary for the creation of financial reports. Additionally, to avoid costs brought on by human error, such as failing to enter spending and making computations incorrectly.

Increasing Sales

Selling goods to generate revenue is the next significant task performed by trade businesses. One of the business issues that organizations must deal with is the product sales process, which is a key activity in the trade company.

In order to achieve the maximum profit, the corporation must implement a number of methods in real life. They’ll utilize the money they make as capital to repurchase goods and keep them available in warehouses.

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Money Receipt

Receiving funds from all buyer settlements and payment actions is a trading company’s last activity. Of course, they also have the right to payment after investing a lot of money in the company’s operations to ensure the safety of cash flow.

Financial regulatory apps can be used to simplify for businesses the control and monitoring of cash flow as well as the production of financial reports during the process of receiving this money.

These are some of the primary tasks that trading firms or trading firms perform. Basically, the company’s main operation consists of purchasing and selling items and storing them in warehouses to guarantee product availability.

A trading company example

There are numerous trading firms in Indonesia that have been in business for dozens to tens of years. This is due to the fact that Indonesia is one of the nations with very brisk trade; therefore, trade activities cannot be divided.

People and trading companies are inextricably linked in daily life. Here are a few instances of trading firms or trading firms with well-known names in Indonesia:

Bestoindo PT

A trade firm that falls under the wholesaler or wholesaler category is PT Bestoolindo. PT Bestoolindo purchases products in bulk before reselling them. They deal in items that are either mechanical or technical in nature.

Oxford, Kennedy, Senator, Edison, Matlock, Indexa, Osaki, Q-Tord, Sherwood, Tuffsafe, Yaloy, Atlas, Sherlock, and other mechanical devices are among them.

Matahari Putra Prima Tbk, PT (Hypermart)

PT Matahari Putra Prima Tbk (Hypermart), another illustration of a trade firm with a respectable reputation in Indonesia PT Matahari Putra Prima Tbk is a particular kind of retail business that deals in various goods for everyday and domestic needs.

They market these goods to end users, and some examples of the daily necessities they offer are apparel, food, and beverage items.

Sumber Alfaria Trijaya PT (Alfamart)

One example of a trade company that we frequently come across in different places, even in rural areas, is PT. Sumber Alfaria Trijaya (Alfamart).

Another retailer is PT Sumber Alfaria Trijaya, popularly known as Alfamart. Daily essentials like soap, detergent, cooking oil, food and beverage products, and comparable items are among the categories of goods sold.

Important Factors a Trading Company Should Take into Account

There are essential factors that must be taken into account when running a trading firm or trading company to keep the business functioning properly. The following are crucial elements for trading companies:

Inventory Management

Inventory control is the act of recording inventory. There are two forms of inventory control accounting: periodic inventory methods and perpetual inventory methods. Purchases are credited to the purchases account rather than the inventory account when using the periodic method.

Similar rules apply to sales transactions, which are credited to the sales account rather than the inventory account. For each product sold, the perpetual method will continue to record the sales volume and cost of products sold.

The amount of current product inventory will be continuously shown in accounting records using this way.

Money Flow

In a trading corporation, cash flow, or what is generally referred to as cash flow, is the main aspect of financial management. The company will remain steady and operate as it should with properly handled cash funds.

Both financial funds for the company’s operations requirements, the repayment of past-due obligations, as well as funds for corporate expansion. A financial regulatory application can be used to simply control corporate finances if everything is documented correctly and nothing is overlooked or computed incorrectly.

Financial reports are therefore necessary for businesses to understand how healthy their financial situation is, particularly cash in and cash out.

Company Profits

Trading To keep the business operating and expanding, company profit is the key concept. Companies will struggle to turn a profit and struggle to grow their firm if there is no profit.

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Trading firms will become less competitive with rival firms when they encounter this. The corporation may experience even more tragic effects and cease to continue operating.

It is a constant struggle to increase corporate performance and maximize profits. Companies must therefore keep innovating if they want to see future growth in their industry.

Payment of Debts Easily

If trade companies consistently make their debt payments on schedule, collaboration with producers or suppliers will go smoothly. Companies must effectively manage their money to prevent debt arrears.

Trading companies and trading platform providers have different business models.

Many individuals have the incorrect impression about trading companies; they believe that these are businesses that offer trading platforms for commodities like stocks and currencies.

Remember that a trading company or trading company is a business that engages in trade. Therefore, their primary business is to buy goods, store them in a warehouse, and then resale them.

so that you are better aware of the distinctions between trading firms and businesses that offer trading platforms for stocks, FX, and other markets. The following are thorough explanations of trading activities and firms that offer trading platforms:

Trading Activities in the Capital Market Defined

Trading is a term that was borrowed from English, and the word itself has a vast definition that goes beyond simply trading stocks, currencies, and precious metals on the stock market.

The connotation is also extremely broad because the word “trade” is translated into Indonesian as trading. The majority of Indonesians believe that the term “trading” solely refers to buying and selling operations on the capital market because they are still inexperienced with it.

However, it is not completely accurate to refer to a corporation that offers a trading platform on the capital market as a trading company. Better referred to as brokers, the businesses that offer trading platforms on the capital market serve primarily as middlemen, making trading on the capital market more accessible to traders.

Capital Market Definition of a Trading Platform Provider Company

For a business that offers a trading platform on the capital market, the name “trading firm” is incorrect. As was previously mentioned, the company should be referred to as that broker.

A company known as a broker facilitates transactions between traders and the capital market. Through brokers, traders can quickly and practically buy and sell stocks, foreign currency, bitcoin, or gold on the capital market.

Brokerage firms are required to do their tasks in compliance with the established exchange code of ethics. Brokerages that are reputable and well-respected must be members of the stock exchange.

Additionally, the brokerage firm needs to provide confirmation that its representatives passed the WPPE or Securities Trader Representative exam. In addition to having documentation that they passed the WPPE test, they need to be Certified Financial Analysts (CFA) in order to get benefits.

The government will oversee the activities of brokerage firms through BAPPEBTI (Commodity Futures Trading Regulatory Agency). Therefore, a brokerage firm that can be relied upon to be secure and trustworthy needs to have a business license from BAPPEBTI.

For those who are just starting out in the stock market and are seeking for a reliable and secure trading platform. It’s preferable if you confirm that the brokerage firm you select satisfies the following criteria:

  1. already been proven to be lawful in the opinion of the government
  2. an existing participant in the Indonesian Stock Exchange
  3. possess a BAPPEBTI business license already

It is clear from the description above that a trading company deals in items and differs from a brokerage firm, which offers a trading platform on the capital market. A trading corporation needs sound corporate financial management, thus using accounting software may be necessary to make the operation function more efficiently.