Commercial Paper

AAA

DEFINITION of '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 EXPLAINS 'Commercial Paper'

Commercial paper is not usually 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.

Want to know more? Read Introduction To Commercial Paper

VIDEO

Loading the player...
RELATED TERMS
  1. Fine Paper

    High-quality securities that are assumed to be risk free, or ...
  2. Liquidity Crisis

    A negative financial situation characterized by a lack of cash ...
  3. Euro ETF

    An exchange-traded fund that invests in the euro currency, either ...
  4. Accounts Receivable - AR

    Money owed by customers (individuals or corporations) to another ...
  5. Banker's Acceptance - BA

    A short-term debt instrument issued by a firm that is guaranteed ...
  6. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. ...
RELATED FAQS
  1. Why is debt issued in both temporary and permanent forms?

    Debt is separated into two categories: 1) Temporary or short-term 2) Permanent or long-term. Temporary or short-term debt ... Read Full Answer >>
  2. Why do commercial bills have higher yields than T-bills?

    The reason that commercial bills have higher yields than T-bills is due to the varying credit quality of each bill type. ... Read Full Answer >>
  3. What's the difference between short-term investments in marketable securities and ...

    Most of the time, when an investor or analyst searches through the financial statements of a publicly traded company, he ... Read Full Answer >>
Related Articles
  1. Investing

    Commercial Paper

    Commercial paper is a short-term debt security issued by financial companies and large corporations. The corporation promises the buyer a return, or profit, for making the loan. The return is ...
  2. Investing Basics

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  3. Mutual Funds & ETFs

    Asset-Backed Commercial Paper Carries High Risk

    Asset-backed commercial paper has characteristics that make it much more risky than traditional commercial paper.
  4. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  5. Personal Finance

    Investing In Emerging Market Debt

    This asset class has left much of its unstable past behind. Find out how to invest in it.
  6. Mutual Funds & ETFs

    Preferred Stock ETFs: Are They Right for You?

    Considering preferred stock ETFs? Here's a look at their pros and cons.
  7. Mutual Funds & ETFs

    PIMCO vs. BlackRock: Weighing Mega Fund Managers

    A look at the world's biggest bond manager and the world's largest asset manager.
  8. Mutual Funds & ETFs

    The ABCs of Mortgage-Backed Securities ETFs

    ETFs focused on mortgage-backed securities, or MBS, offer an opportunity to further diversify the fixed-income portion of your portfolio.
  9. Economics

    What Would Happen If Interest Rates Rise?

    This time around, while U.S. long-term yields have rebounded from their January lows, rates have generally been lower than where they ended 2014.
  10. Investing

    Strategies To Position Your Bond Portfolio

    Fixed income investors may not be able to see them all right now, but important trends are stirring on the investment horizon.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center