Online trading companies

Posted by Cynthia Smith on April 21st, 2021

An online trading company is a trading company that primarily operates via the internet and its electronic commerce tools. Much like any regular trading company, online trading businesses specialise in buying goods from manufacturers and selling them on to consumers or other retailers. However, the online nature of this business makes it different, presenting specific benefits and limitations. Selling goods online offers huge opportunities and advantages, allowing you to trade on a global scale and save on organisational and administrative costs such as wages, office rent and others.

The main difference is that a 100% online trading company (without any physical shops whatsoever, just headquarters and storage facilities) needs a virtual rather than a physical infrastructure. An offline trading company needs offices, shops, storage units and a logistics network linking suppliers, offices and outlets; an online trading company requires offices, storage units, powerful servers and websites, as well as a flexible logistics system that allows it to serve customers scattered across many locations.

As you can see, online trading companies require less physical infrastructure, but they must also be a lot more flexible in serving their customers. Moreover, while for a regular trading company a website is a beneficial addition, for an online trading company it is an essential tool, without which the enterprise cannot function — hence the high requirements for the capabilities of the website and the host server.

Functions of an online trading company

The main function of an online trading company is to purchase goods from a manufacturer and sell them on to retailers and consumers. A secondary, but nonetheless essential, task is to deliver the goods to customers, as usually online trading companies lack physical infrastructure, such as shops, outlets and other points of sale.

To buy and sell goods, an online trading company must set up a hub for transferring products from manufacturers to customers. In this case, that hub is a website. Just as a physical shop requires designers and marketing specialists to arrange and present products in the most advantageous way, a digital shop also requires specialists to guide customers through the possible buying options.

As for delivering goods, an online trading company can choose to either establish the delivery network itself, or outsource this task by entering into a contract with a logistics company. The online trading company then hands over its goods to the logistics company, which takes care of delivering the goods using its own network.

Key aspects of trading online

Although the goods or services sold by online trading companies will vary, there are some common elements due to the specific ways in which these companies market and sell their final products. Here are some of the main issues that you will encounter, regardless of what you are selling online.

Distance selling

A special category of online trading business is EU distance selling. E-commerce has made huge gains in Europe, and the online market is growing year-on-year. However, every retailer must understand the implications of e-commerce in the EU in terms of VAT. VAT rules are quite different for online sellers; for example, there are different thresholds for VAT registration (e.g. GBP 70,000 for the UK, EUR 35,000 for Poland or Italy, EUR 100,000 for Germany). There is no minimum threshold for providers of digital, electronic and broadcast services, who must apply VAT at the rate set by the country where the consumer is located.

Online stores and websites

Naturally, a website is an absolute must for any online business. Designed as an online store (describing the range of products available, their prices and features), the website must also include the following important sections:

• Delivery and returns policy
• Contact page, with a phone number, address, email address and other contact information for consumers to use
• Online payment options

Online payment solutions

A way to accept online payments is by far the most important consideration for an online business. Your consumer must have a way to pay for your products and services instantly and securely. There are two basic ways to accept payments on your online store:

• By using an online payment system, for example PayPal
• By using a merchant account to accept direct credit card payments