CPs are usually sold at a discount from face value, and carries higher interest repayment rates than bonds. They would not be likely to look to individual investors as a source of capital to fund the transaction.
He also noted that a bank or mutual fund with surplus temporary liquidity will prefer to subscribe to commercial papers and earn a slightly higher return in the short-term than parking funds under reverse repo.
Short term general funding that may require assets for collateral.
However, it can be used as a source of finance only by large companies enjoying high credit rating and sound financial health.
If the due date happens to fall on a holiday, the company shall be liable to make payment on the immediate preceding working day.
As present day commerce is built upon credit, the trade credit arrangement of a firm with its suppliers is an important source of short-term finance. However, it must be noted that it may not be desirable or even possible to postpone these expenses for a long period.
Advantages of commercial paper: High credit ratings fetch a lower cost of capital.