Last updated: 28 July 2026. This page is sourcing and commercial guidance from a trading company — it is not legal, customs or tax advice. The tariff position described below was accurate on the date above and rates continue to move; check your own codes with your customs broker before you model anything.
There are only three ways an intermediary between you and a Chinese factory gets paid, and a fourth thing that isn't a payment model at all. Below is how each one works, documented cases of the fourth, why concealed markup became measurably more expensive in 2026, and six questions that will tell you which one you're actually in. Then our own arrangement, held to the same test.
How the money works
There are only three ways an intermediary gets paid. Two of them are fine.
- Commission on order value. You agree a percentage. Simple, and it works — as long as the percentage you agreed is the only money changing hands. The failure mode is that it usually isn't.
- Fixed fee. You pay a defined amount per project or per month, and it doesn't move with the invoice. Structurally the cleanest, because the intermediary cannot profit from the gap between what you're shown and what the factory charges.
- Declared margin — a trading company. The intermediary buys from the factory and sells to you under its own name, with a margin it discloses. There is no pretence of neutrality, so there is no neutrality to betray. This is our model, and we say so on the invoice.
- And the fourth thing, which isn't a model. Undisclosed money from the supplier side, on top of whatever you agreed. That is not a pricing structure. It is a conflict of interest being paid for.
The distinction that matters is disclosure, not job title. A commission agent who tells you exactly what they earn is a clean arrangement. A trading company that hides its margin is not. Everything below is about the concealment, not the category.
Where it hides
Documented cases, not hypotheticals.
International manufacturing lawyers at Harris Sliwoski publish what they find in their own client work. A sample of the published cases:
The double-dip
A European electronics company had a 5% commission agreement. Its agent was inflating factory prices by 35% and separately collecting 10–15% directly from the factories. It came to light only because an internal invoice was forwarded to the client by mistake.
The silent downgrade
A US home goods company overpaid roughly $2.4 million across three years, paying close to 40% above direct factory price to an agent presenting as a factory. It surfaced after a major quality failure — at which point it emerged the agent had quietly moved production to a lower-tier manufacturer to protect its own margin. The buyer's quality problem and the buyer's pricing problem had the same cause.
No one to sue
A European buyer rejected defective shoes and withheld payment. The party that sued them wasn't the factory — it was the agent, whose contract guaranteed payment regardless of product quality. With no contractual relationship to the manufacturer, the buyer settled at around 80% of invoice for shoes they could not sell.
Paying twice
An agent owed money to the factory actually making a retailer's Christmas lights. The factory withheld the shipment. The retailer paid the manufacturer directly to release it — and discovered factory prices were nearly 50% below what the agent had been charging. The stock arrived in November instead of May.
The firm reports uncovering five to ten cases like these every year, with markups consistently landing around 40%.
Why this got worse in 2026
An inflated invoice now costs you twice.
Duty is assessed on the invoice value you present at the border — not on what the factory was paid. That single fact turns a hidden markup from a margin problem into a customs problem.
The mechanics, at a round number. Take a $1,000,000 order routed through an intermediary taking 40% of the invoice value — the level the cases above keep landing on. The factory receives $600,000. The remaining $400,000 of that invoice bought you no goods, no tooling, no inspection and no freight. That is the old problem, and on its own it is bad enough.
The new problem sits on top of it. You declare $1,000,000, because that is the invoice you hold. Duty is calculated against the full declared value, so you also pay duty on the $400,000 — a second charge on money that never reached a manufacturer. Whatever rate your HS code carries, you are paying it on a number that was inflated for someone else's benefit, and you pay it again on every reorder.
We are deliberately not printing a total duty percentage here. The US stack moved repeatedly through 2026 — the IEEPA layer was held unlawful in Learning Resources v. United States on 20 February 2026, the Section 122 surcharge lapsed on 24 July 2026, Section 301 continues on a separate authority — so any single headline rate would be wrong for most readers and stale for the rest. The arithmetic above holds at any rate. Only the size of the second bill changes.
Work out your real landed costAudit your own arrangement
Six questions. The answers matter less than the willingness to answer.
- What is the factory's price for this item? Not your price. Theirs.
- Do you receive any payment, rebate, discount or benefit from the supplier side? Ask for it in writing.
- What exchange rate do you apply, and what's the spread? Conversion is a common quiet skim.
- Which legal entity manufactures my goods, and can I contract with them directly? If you have a name, you can check it on gsxt.gov.cn in about ten minutes.
- If I leave, what happens to my molds, tooling, specifications and supplier relationships?
- Are you contractually entitled to payment even if the goods fail inspection?
Reading the answers
A partner with nothing to hide answers all six in one email. Evasion on any of them is the finding — you do not need a confession, you need a pattern of unwillingness.
Two related pages go deeper on the operational side of the same problem: why three quotes usually aren't comparable, and what to confirm before you release final payment.
Applying it to us
We're a trading company. Here's exactly what that means for your invoice.
We buy from the factory and sell to you under our own name. There is a margin, it is ours, and it is disclosed before you order. We do not take commission from suppliers, and we do not present ourselves as your neutral representative while being paid by the other side — that specific combination is what every case above has in common.
Worth being precise about the distinction. Harris Sliwoski's own framing is that their warning is aimed at fraudulent agents and those who misrepresent their compensation, and is explicitly not about legitimate, transparent sourcing agents providing real services at honest pricing. The line they draw is concealment versus disclosure — not agent versus trading company. We agree with them, which is inconvenient for anyone who would rather this were a turf war.
What you can ask us for
- Our margin, stated in writing before you commit. It is a percentage of order value on a sliding scale — the larger the order, the lower the percentage. You see the rate that applies to your order before you agree to anything, not after.
- An open-book arrangement. Full visibility of factory cost with our margin disclosed on top. We offer it. Not every client wants it; the offer stands regardless.
- Written exit terms. Molds, tooling and specifications leave with you.
- Our business licence details. So you can verify us on gsxt.gov.cn the same way we verify factories — our Unified Social Credit Code is published on this site, not held back until you ask nicely.
Engagement model
How this is priced.
- Single-quote audit One quote checked against the market. Free, no obligation, and we confirm the turnaround when you send it.
- Sourcing project Quoted per project, with our margin disclosed before you commit.
- Ongoing procurement Monthly retainer based on order volume and supplier count.
We publish one number — a single factory visit is US$268 — and no rate card beyond it, because a rate card set against an unknown category and volume is a guess dressed as a number. You get a figure before you commit, in writing, and it does not move afterwards without your agreement.
Where these facts come from
Every sourced claim on this page, and how to check it.
We would rather you verified this than trusted us. Each item below is checkable at source.
- The four cases and the 40% figure. Published by the international manufacturing lawyers at Harris Sliwoski, drawn from their own client matters, including their statement that they uncover five to ten such cases a year. Search their firm's publications for their writing on China sourcing agents and read the originals.
- Their carve-out for honest agents. Also theirs, and stated explicitly — the warning is aimed at fraudulent or misrepresenting intermediaries, not at transparent ones. We quote it because it is the fairest version of the argument, not the most flattering to us.
- The 2026 tariff position. IEEPA tariffs held unlawful in Learning Resources v. United States, decided 20 February 2026. The Section 122 surcharge lapsed at the end of its 150-day statutory limit on 24 July 2026. Section 301 continues under a separate authority with no expiry. See our tariffs page for the detail and the caveats.
- Our own arrangement. The only claim here you cannot check from a public source — so test it instead. Ask for the applicable margin rate in writing, or send us a competing factory-direct quote. Both are tests we can fail.