Compare the Difference Between Similar Terms

Difference Between

Home / Business / Finance / Banking / Difference Between Commercial Paper and Commercial Bill

Difference Between Commercial Paper and Commercial Bill

September 21, 2011 Posted by Olivia

Commercial Paper vs Commercial Bill

We keep hearing terms like Commercial Paper (CP) and Commercial Bill in financial and corporate circles without ever understanding their significance and importance. These financial instruments serve two different purposes. Despite having the word commercial prefixed, there are many differences between the two. This article attempts to highlight the features of commercial paper and commercial bill and the differences between these financial instruments.

Commercial Paper

Commercial paper is a borrowing instrument that banks and other financial companies make use of to finance short-term investments. Usually banks and large corporations use CP to manage working capital or to purchase inventory. You can think of CP as an instrument to raise capital for a short time period, which is usually less than a year. It is a discounted instrument having a face value and a maturity value. The purchaser of a commercial paper buys it at the discounted rate which is equal to the maturity rate minus the interest CP carries. These commercial papers have a rating that is indicative of their safety and security and reflects the confidence of the investors in these instruments.

In India, companies having a net worth of at least four crores are allowed to raise capital by issuing these commercial papers.

Commercial Bill

Commercial bills, as the name implies, are instruments issued by banks that finance invoices raised by a company. Suppose a company selling goods or products to another company is apprehensive about the payment or at least wishes to enhance the safety of his money can get commercial bills issued by banks. Banks issue advance payment in lieu of invoices that show sale of goods. This is an instrument that comes into effect only after a sale has taken place. This is an instrument used by banks to accept and/or discount the bills of a customer. Commercial bills are issued for financing needs of medium term.

What is the difference between Commercial Paper and Commercial Bill?

• Commercial paper and commercial bill are both financial instruments used by banks.

• Commercial paper is used by banks to raise finances for a short time period. The buyer gets CP at a discounted rate, while he gets face value on maturity.

• Commercial bill is an instrument that helps companies to get advance payment for the invoices they raise after making sales to their customers.

• Commercial paper is used by banks to meet their short-term obligations, while commercial bills help companies to get money in advance, for sales they make.

Related posts:

Difference Between Bank of America and J.P. Morgan Chase Difference Between Base Rate and BPLR Rate Difference Between Online Banking and e-Banking Difference Between Credit Card and ISIS Mobile Wallet Difference Between Bank Rate and Repo Rate

Filed Under: Banking Tagged With: borrowing instrument, Commercial Bill, Commercial Paper, finance invoices, finance short-term investments, financing needs of medium term

About the Author: Olivia

Olivia is a Graduate in Electronic Engineering with HR, Training & Development background and has over 15 years of field experience.

Leave a Reply Cancel reply

Request Article

Featured Posts

Difference Between Coronavirus and Cold Symptoms

Difference Between Coronavirus and Cold Symptoms

Difference Between Coronavirus and SARS

Difference Between Coronavirus and SARS

Difference Between Coronavirus and Influenza

Difference Between Coronavirus and Influenza

Difference Between Coronavirus and Covid 19

Difference Between Coronavirus and Covid 19

You May Like

Difference Between Friction and Shear

Difference Between Deadlift and Romanian Deadlift

Difference Between Nokia Lumia 1020 and Samsung Galaxy S4

Difference Between Cytosol and S9 Fraction

Difference Between Cytosol and S9 Fraction

Difference Between Heavy Cream and Double Cream

Latest Posts

  • Difference Between Brainstem and Cerebellum
  • Difference Between Midol and Tylenol
  • Difference Between Merozoites and Sporozoites
  • Difference Between Ammonium Sulfate and Sodium Sulphate
  • Difference Between Acidimetry and Alkalimetry
  • Difference Between Heat Flow and Heat Flux
  • Home
  • Vacancies
  • About
  • Request Article
  • Contact Us

Copyright © 2010-2018 Difference Between. All rights reserved. Terms of Use and Privacy Policy: Legal.