commercial paper

Commercial Paper

An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates.

Investopedia Commentary

Commercial paper is usually not backed by any form of collateral so only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue. A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC) as long as it matures before nine months (270 days), making it a very cost effective means of financing. The proceeds from this type of financing can only be used on current assets (inventories) and are not allowed to be used on fixed assets, such as a new plant, without SEC involvement.

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See also: Accounts Receivable - AR, Banker's Acceptance - BA, Certificate of Deposit - CD, Interest Rate, Loan, Money Market

commercial paper

A short-term unsecured promissory note issued by a finance company or a relatively large industrial firm. The notes are generally sold at a discount from face value with maturities ranging from 30 to 270 days. Although the large denominations ($25,000 minimum) of these notes usually keep individual investors out of this market, the notes are popular investments for money market mutual funds. Used interchangeably with the term paper. See also prime paper.