Trading Companies: Definition, Types, and Characteristics

Trading Companies: Definition, Types, and Characteristics

trading-companies

In the industrial world, there are two types of companies, namely trading companies and non-trading companies. A trading company is a company that is engaged in the business of buying and selling commodities and profiting from the price difference they get.

Trading companies are also often referred to as trading companies. In this discussion, we will explain the meaning, characteristics, types, and differences between trading companies and individual traders' activities in detail.

Understanding Trading Companies in General

The term trading company in English can be interpreted as a trading company. As discussed above, a trading company is a company that earns profits by carrying out buying, storing, and selling activities.

The profit they get comes from the difference between the selling price and the buying price. Keep in mind, that these trading companies do not add value to the products or commodities they buy.

So, the trading company will store the commodity, and then resell it at a price higher than the selling price. The types of products or commodities they sell can usually be raw materials, semi-finished products, finished products, agricultural products, and other goods.

Trading Company Characteristics

Each type of company has its characteristics, including the types of trading companies and non-trading companies.

For those who cannot distinguish between trading companies and non-trading companies, some of the characteristics of trading companies are as follows:

Business activities carried out are in the form of buying goods, storing goods in warehouses and maintaining inventory, and selling goods, as well as incurring costs for the purchasing process.

The trading company does not carry out any production processes or activities that refer to changes and adding value to the products purchased.

The total amount of profit they get is obtained from the total number of sales of goods minus the total number of purchases of goods and the company's operating budget.

Trading companies use inventory accounts or inventory listed in balance sheets, income statements, and COGS calculations.

Types of Trading Companies

Trading companies or trading companies can be distinguished according to the goods they buy and sell and also from the type of consumers. To know more about trading companies, the types of trading companies are as follows:

1. By Merchandise

Based on the goods they sell and buy, trading companies are divided into two types, namely:

Trading Company Raw Materials Production

This type of production raw material trading company sells and buys raw materials that need to be reprocessed by the buyer to be used as finished products. These raw materials will be used as production materials and processed using certain tools and techniques, to produce ready-to-use products.

Generally, production raw material trading companies target the market target of companies engaged in the industrial sector. Companies engaged in the industrial sector certainly need raw materials and also run a business-to-business (B2B) system.

Examples of goods traded by trading companies for the production of raw materials include:

Wood is to be used for the production of furniture, furniture, and building materials.
Cotton will be used as raw material in the production of yarn.
Palm oil will be used as raw material in the production of cooking oil.
Finished Goods Trading Company

Several trading companies sell and buy ready-to-use goods. So that the goods they sell are intended for the final consumers who need these goods. Examples of goods traded by this type of trading company include:

Smartphone
Computer
Air conditioner
Refrigerator
Clothes
Food
Drink
And basic food products

The type of business run by this finished goods trading company is more focused on a business-to-consumer (B2C) system, which is a business system that sells directly to final consumers.

2. By Type of Consumer

Trading companies can also be distinguished based on the type of consumer, here are some types of trading companies based on the type of consumer:

Wholesaler 

The first type of trading company is a wholesaler, this company buys goods directly from factories or producers in large quantities. These companies will resell the products they buy in large quantities as well.

This type of trading company has a storage warehouse large enough to store a large number of product inventories. One example, namely distributors where one can get a more affordable price, compared to buying it in retail.

Products that have been purchased by wholesalers are usually resold, to intermediaries who need a large stock of products to sell directly to final consumers.

Middleman

This next type of trading company is a party whose position is between wholesalers and retailers (retail traders). The main task of middlemen is to buy goods in bulk and then resell them to retailers or retailers in smaller quantities.

So, these middlemen do not sell the products they buy directly to the final consumers. Wholesalers can be an example of middlemen selling their products to retailers.

Retailer

A trading company is a company engaged in trading all forms of goods. The last type of trading company is a retail trader or retailer. Their main activity is to buy the product in smaller quantities and then resell the product directly to the final consumer.

Because the target market is the final level of consumers, they will sell products in retail or individually. For example, retail companies such as supermarkets, supermarkets, minimarkets, and so on.

Trading Company Activities

The activities carried out by trading companies or trading companies are quite different from other types of companies. Of course, the company's business activities in the trade sector are very different from companies engaged in the industrial sector

For those who don't know, the main activities of trading companies are as follows:

Make a Purchase

The first main activity is to make purchases of various types of goods or products, which are in demand by consumers or needed by the market. In purchasing this product, the company will determine what types of products are worth buying and selling by the company.

The process of determining the type of product to be sold will have a major influence on the sustainability of the trading business. Thus, the problem is quite risky and must be thought out and planned carefully.

Not only goods in the form of products or services, but trading companies can also buy goods in the form of assets or assets.

Expenses

When purchasing a product, the company will indirectly incur costs to complete the transaction. Examples of expenses at a trading company are payments for product purchase transactions, debt payments, warehouse rent, tax payments, labor salaries, and so on.

Various cash disbursement transactions need to be recorded to facilitate the preparation of financial statements. And so that there are no losses caused by human error, such as forgetting to record expenses and miscalculations.

Making Sales

The next important activity a trading company does is to sell products for profit. The process of selling products is a core activity in the trading business and is one of the business challenges that must be faced by the company.

So, in its implementation, the company must carry out various strategies to get the maximum profit. The profits they get will be used as capital to buy products again and maintain product availability in the warehouse.

Money Receipt

The final activity of a trading company is to receive money from all payment and settlement activities from buyers. After spending a lot of money on the company's business activities, of course, they are also entitled to receive payments so that cash flow remains safe.

In the process of receiving this money, it must also be recorded in the cash book, to make it easier for companies to control and monitor cash flows and make financial reports using financial control applications.

So, those are some of the main activities carried out by trading companies or trading companies. This company has a core activity of buying and selling products and storing them in warehouses to ensure the availability of goods.

Important Things Trading Companies Need to Pay Attention to

In running a trading company or trading company, there are important things that must be considered to maintain the smooth running of the business. Here are some important things in a trading company are:

Inventory Control
Inventory control is the recording of inventory, in accounting inventory control is divided into 2 types, namely periodic and perpetual inventory methods. In the periodic method, the purchase transaction is not debited in the inventory account but is debited in the purchase account.

Likewise for sales transactions, which are not credited in the inventory account but to the sales account. While in the perpetual method, the number of sales and cost of goods sold will still be recorded for each product sold.

With this method, the accounting records will continuously display the amount of product inventory on hand.

Cash Flow
The main thing from financial management in a trading company is cash flow or what is commonly called cash flow. A well-managed cash fund will keep the business stable and running properly.

Both cash funds are for the company's operational funds, payment of maturing debts, as well as funds for business development purposes. It must be recorded properly and nothing should be missed or miscalculated so that the company's finances can be controlled easily with a financial control application.

Therefore, financial reports, especially for cash in and cash out, are very necessary, to help companies see how healthy their financial condition is.

Company Profit
Trading company profit is the main keyword to keep the business running and growing. Without profit, companies will find it difficult to make profits and they will find it difficult to develop their business.

When trading companies experience this, they will lose competitiveness with their competitors. Even more fatal consequences can make the company go out of business and fail to maintain its business.

Improving business performance to get as much profit as possible is a challenge that will continue to come. So companies are required to continue to innovate so that their business can continue to grow in the future.

Smoothness in Debt Payment

Cooperation with producers or suppliers will work well if the trading company always pays its debts on time. To avoid debt arrears, companies must manage their finances properly.

Difference between Trading Company and Trading Platform Provider Company


Many people have the wrong perception about trading companies, where many people think that trading companies are companies that provide trading platforms for stocks, forex, and the like.

Keep in mind, that a trading company or trading company is a company engaged in trading. So that their main activity is to buy products and then store them in a warehouse and then resell them.

So that you understand more about the differences between trading companies and companies providing trading platforms for stocks, forex, and others. The following is a detailed explanation of the trading activities and trading platform provider companies:

Understanding Trading Activities in the Capital Market

Trading is a term taken from English, trading itself has a broad meaning not only about trading stocks, forex, bitcoin, and gold in the capital market.

The word "trading" if translated into Indonesian is trade, then its meaning is also quite broad. Because the Indonesian people are still unfamiliar with the term, it makes most people think the term trading is only intended for buying and selling activities in the capital market.

While a company that provides a trading platform in the capital market, it is not quite rightly called a trading company. A trading platform provider company in the capital market is more accurately called a broker whose main task is to act as an intermediary to make it easier for traders to trade in the capital market.

Definition of a Trading Platform Provider Company in the Capital Market

The trading company is an inappropriate term to refer to companies that provide trading platforms in the capital market. As discussed above, that broker is the right term to refer to the company.

The broker itself is a company that serves as a liaison for transactions between traders and the capital market. Through brokers, traders can buy and sell stocks, foreign currencies or forex, bitcoin, or gold in the capital market easily and practically.

Companies that act as brokers must carry out their duties by the stock exchange code of ethics that has been set. Brokerage companies that are trusted and have good credibility must have been members of the stock exchange.

Not only that, but the brokerage company must also have proof of passing the Broker-Dealer's Representative exam or WPPE. In addition to having proof of passing the WPPE exam, they must also have a Certified Financial Analyst or CFA certification to get added value.

All activities of the brokerage firm will be monitored by the government through the Commodity Futures Trading Regulatory Agency. So, a brokerage company that is guaranteed to be safe and reliable must already have a business license.

For beginners who will trade in the capital market and are looking for the right and safe trading platform. It's a good idea to make sure the brokerage company you choose already has the following requirements:

Already have clear legality in the eyes of the law
Already a member of the Stock Exchange
Already have a business license.

From the discussion above, it can be understood that a trading company is a goods trading company and is different from a brokerage company that provides a platform for trading in the capital market. A trading company requires good corporate financial management so maybe the use of an accounting computer application is needed so that the business runs smoothly.

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