Commercial Paper

Commercial paper

Short-term unsecured promissory notes issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.

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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.

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Commercial Paper

An unsecured, short-term debt security issued by a corporation. Commercial paper is usually issued at a discount from par, and is a popular investment with mutual funds. It usually is issued in large denominations (over $250,000) and has a maturity of less than 270 days, with most maturing within one or two months of issue. It is a highly liquid investment and forms part of the money market. It is often simply called paper.

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Commercial paper. To help meet their immediate needs for cash, banks and corporations sometimes issue unsecured, short-term debt instruments known as commercial paper.

Commercial paper usually matures within a year and is an important part of what's known as the money market.

It can be a good place for investors -- institutional investors in particular -- to put their cash temporarily. That's because these investments are liquid and essentially risk-free, since they are typically issued by profitable, long-established, and highly regarded corporations.

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Commercial Paper

What Does Commercial Paper Mean?

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

Investopedia explains Commercial Paper

Generally, commercial paper is not backed by any form of collateral; therefore, only firms with high-quality debt ratings will find buyers easily without having to offer a substantial discount (higher cost) for the debt issue. Commercial paper does not have 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. Monies from this type of financing can be used only on current assets (inventories), not on fixed assets, such as a new plant, without SEC involvement.

Related Terms:
• Cash and Cash Equivalents
• Banker's Acceptance—BA
• Interest Rate
• Certificate of Deposit—CD
• Money Market