For as long as there has been trade, it has been critically necessary to have finance.
Trust is of course important, but sellers have always needed to have the confidence that they will be paid in a timely manner. And buyers have always needed to have their obligations between purchase and sale bridged. Without finance there would be no trade.
Throughout history, man has developed numerous finance tools. Today there are many, including letters of credit, bills of exchange, promissory notes, IOU’s, etc. These traditional tools help to facilitate the execution of a trade, but many sellers need help with liquidity prior to receipt of the corresponding payments under these instruments. In addition, many sellers need finance to purchase, to produce, or to add value to the goods that they have committed to sell.
Furthermore, the so-called pre-finance (the ability to use third party funding to prepare the goods prior to shipment) is nigh on impossible to procure. Some letters of credit for example have a so-called ‘Red Clause’, that enables to seller to receive some element of advance liquidity prior to shipment, but these are few, far between, and less and less available.
Buyers too often find it very difficult to get traditional financial institutions to establish these finance tools. Many banks today require 100% cash collateral – some more than that! – but the buyer’s inability to put up the cash collateral is precisely the reason he needs the financial institution. Without finance there is a vicious circle that cripples both the buyers and the sellers. In short, the lack of finance is the Achilles Heel of trade.
TSP provides an efficient funding solution, bringing together the funding required by buyer and / or that required by the seller in a quick, seamless, flexible, and efficient manner that is not available from traditional financial institutions like banks.