What are commercial papers?

What are commercial papers?

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In the contemporary business world, commercial papers are one of the most important elements that contribute to the success of companies and institutions. It is a commercial document that carries with it the identity, credibility, and professionalism of the business. So, if you are looking for a powerful tool for communicating and influencing customers and business partners, then these papers play a crucial role in achieving this goal. It is worth noting that commercial paper varies according to its purposes and types, from personal cards to invoices and commercial offers, and remember that its attractive and professional design reflects the image of positive information about the company and encourages the recipient to pay attention to and trust in the work presented. In addition, the effective use of commercial papers gives you the opportunity to highlight your capabilities, services, and products in a distinct and consistent way with your company’s identity.

What are commercial papers?

Commercial papers can be defined as financial instruments used in the business world to finance short-term commercial activity. These papers represent a legal agreement between the parties involved and contain information such as maturity dates and amounts due.

The commercial paper is short-term, as its maturity period does not exceed 270 days. This means that it is a quick and effective means of financing that can be used to facilitate operations in the facility. When the facility faces short-term financing needs, it can issue papers and sell them to investors or banks to obtain the necessary funds. Thus, the organization can cover its expenses and deal with its financial obligations in a timely manner.

Types of commercial papers

In the Saudi system, there are three main types of commercial papers that you must be familiar with, which can be summarized as follows:

The bill of exchange in the Saudi system

If you are wondering: What is a bill of exchange? A bill of exchange can be defined as a commercial document that includes three main parties: the drawer, the drawee, and the beneficiary, as it is:

  • Drawer: The party who issues the order to pay the due amount, such as the bank, for example.
  • The drawee is the party that is obligated to pay the amount to the beneficiary, such as a commercial establishment.
  • Beneficiary: The party who receives the amount due from the drawee, such as suppliers.

The bill of exchange includes information such as the period within which the amount due must be paid, the amount itself, in addition to the date of issuance of the bill of exchange, the names of the parties involved, and their signatures.

Saudi check

A check is also a commercial document that contains three main parties: the drawer, the drawee, and its bearer (the beneficiary). The drawer issues an order to the drawee to pay a specified amount to the check bearer or beneficiary. In this case, the drawee is the bank that disburses the specified amount to the bearer or beneficiary.

The check must include information such as the date the check was issued, the signatures and names of the parties involved, and the amount due for payment.

Promissory bond

It is known as a commercial document that contains only two parties: the bond issuer and the beneficiary, as the bond issuer issues the bond with a specific due amount for the benefit of the beneficiary over a specific period of time.

Remember that it is important for all commercial papers to have the signature of all parties involved, the date the commercial paper was issued, as well as its maturity date. Therefore, this contributes to ensuring the rights of the creditor and ensures that the commercial paper conforms to the conditions of the Saudi system.

Characteristics of commercial paper

Commercial papers are an essential element in money management, and they have distinctive characteristics that make them of great value. Their characteristics include the following:

short term

Commercial papers are characterized by having a short and specific maturity period. Therefore, this means that it must be paid within a short period of time, and this period cannot be exceeded. This is due to the nature of businesses that need quick financial liquidity and rapid circulation of funds.

Debt-proof instrument

A commercial paper is an instrument proving the existence of debts owed by a commercial establishment. It explains the debtor’s obligation to pay the amount owed to the creditor and also specifies the rights and obligations of both sides.

Defined shape

A specific form is established for commercial papers by law, and they cannot be dealt with except by observing this form. Which aims to ensure the protection of the rights of concerned parties and document business operations.


Commercial papers are self-sufficient, meaning that they provide sufficient documentation and synchronization of commercial transactions without the need for further proof. Once the correct commercial paper is in place according to the specified form, it can be relied upon in financial transactions.


Each party to the commercial paper must bear a unique signature attesting to its independence and individual commitment. Therefore, this contributes to clarifying the parties involved in the contract and clearly defining the rights and obligations of each of them.

High financial liquidity

Commercial papers have high financial liquidity; therefore, this means that they can be converted into cash easily and in a short period of time, and it is worth noting that this characteristic makes commercial papers desirable and preferred for investors and commercial companies.

What is the commercial paper discount?

It is a process offered by banks to the debt holder who wishes to collect the amount due before the due date, but at a discount of a certain value to the bank, which is known as the discount rate. It is worth noting that this process is used as a means of obtaining financial liquidity quickly.

The process of discounting commercial papers consists of several main elements, which are:

Discount rate

It is the percentage that is deducted from the nominal value of the financial instrument and is determined by banks according to various factors, such as the period remaining until the maturity date as well as the current interest rate.

Discount cost

The cost of discounting commercial papers includes the bank’s commission, which is an additional fee collected from the debt holder as compensation for the services provided by the bank, such as credit evaluation and process management.

Total cost

The total cost of discounting commercial paper includes collection expenses, which are additional costs charged to the debtor to cover the costs of collecting the amount due.

An example of the process of discounting commercial papers

If there is a commercial paper with a value of 200 thousand Saudi riyals and the customer wants to discount it at the bank before its due date, the bank has stipulated some conditions for implementing the discount process, which include collection expenses amounting to 1,000 riyals and a commission amounting to 2,000 riyals.

To calculate the discount value in this context, you must first calculate the total discount value. This is done by subtracting the value of the amount received by the customer (170 thousand riyals) from the value of the original commercial paper (200 thousand riyals).

  • Total discount = 200,000 minus 170,000 = 30,000 riyals.

Next, the actual discount value is calculated by deducting the collection expenses and commission from the total discount:

  • Discount value = total discount minus (collection expenses + commission).
  • = 30,000 minus (1,000 + 2,000) = 27,000 riyals.

Therefore, the value of the bill of exchange discount in this example is 27,000 riyals.

The difference between securities and commercial papers

The difference between securities and commercial papers lies in their functions, objectives, and methods of trading, and this appears as follows:


Securities are financial contracts that can be used to own shares in various institutions, can be bought and sold in the money market, and are divided into different types, including:

  • Shares are issued in the money market to own a share in another institution and include different types such as common shares, nominative shares, and promissory shares.
  • Bonds are issued by institutions in the financial market to obtain financing, and the bond holder is the creditor party. The bonds may be in cash or in kind.

Commercial papers

They are used as tools to ensure the maturity of debts in commercial transactions. It is worth noting that these securities cannot be bought or sold, but their ownership can be transferred through possession, and they include:

  • Bill of exchange.
  • Promissory bonds, all of which prove the indebtedness of one party to another.

It is worth noting that these papers have a maturity date on which the amount must be paid, and they are easily converted into cash.


Commercial paper is an essential part of the world of business and commerce. They represent important documents related to financial transactions and commercial contracts, and although they may seem dry and boring documents to some, they are still necessary for the smooth and efficient functioning of the business. When dealing with them, we should remember that behind these papers lie exciting stories and amazing opportunities. They reflect cooperation and understanding between individuals and companies, represent our paths towards success and progress, carry with them dreams and aspirations, and form a bridge between the real and financial worlds. So let’s not see a trade paper as just a paper document, but instead focus on the stories and opportunities it holds and promote creativity and innovation in how these papers are shaped and presented. Excellence in this field can be the key to attention and interest.


Whether you are a small entrepreneur seeking to build a strong customer network or a medium company seeking to expand into new markets, paying attention to the design and quality of the commercial paper is vital, and this can only be done by using an effective accounting program, such as Qoyod. It is worth noting that the program also provides all its clients: electronic invoice systems, as well as point-of-sale systems, stores, customers, and so forth.


After knowing what commercial papers are and their components, try Qoyod now for free for 14 days, and feel free to showcase your company and make it reflect your values, skills, and professionalism in the competitive business market.


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