The cost of not taking cash discounts is the price of the credit.Commercial bank lending appears on the balance sheet as notes payable and is second in importance to trade credit as a source of short-term financing.
For many corporations, borrowing short-term money from banks is often a labored and annoying task.
Their desire to avoid banks as much as possible has led to the widespread popularity of commercial paper.
Therefore, smaller investors can only invest in commercial paper indirectly through their broker or in a money market funds.
An unsecured obligation issued by a corporation or bank to finance its short-term credit needs, such as accounts receivable and inventory. Commercial paper is available in a wide range of denominations, can be either discounted or interest-bearing, and usually have a limited or nonexistent secondary market.
Commercial paper is issued for periods varying from two to six months.
Commercial Paper Accounting Terms How To Write A Thesis Statement For An Argumentative Paper
The rates on prime commercial paper vary, but they are generally slightly below the rates paid on prime business loans.China Merchants Bank reserves the ultimate right of interpretation for the contents in this page.Our editors will review what you’ve submitted and determine whether to revise the article.Banks occupy a pivotal position in the short-term and intermediate-term money markets.As a firm’s financing needs grow, banks are called upon to provide additional funds.Thus, the seller may state that if payment is made within 10 days of the invoice date, a 2 percent cash discount will be allowed.If the cash discount is not taken, payment is due 30 days after the date of invoice.Join Britannica's Publishing Partner Program and our community of experts to gain a global audience for your work!A firm customarily buys its supplies and materials on credit from other firms, recording the debt as an account payable.All the contents stated above are for your reference only.Please consult the local branch of China Merchants Bank for further information.