Billet de trésorerie: everything you need to know about this negotiable cash loan for businesses

What is a commercial paper and what is it used for?

A commercial paper is a negotiable debt security (TCN) issued by a company to raise funds over a short period, generally from a few days to a year. This mechanism enables a company to obtain a rapid injection of cash, whether to cope with a cash flow mismatch, an unforeseen expense, or simply to optimize the management of its financial resources.

Unlike traditional bank loans, commercial paper does not require lengthy negotiations or complex guarantees. It offers invaluable flexibility in responding to unforeseen circumstances or seizing market opportunities.

But why is this scheme so attractive to finance departments? Quite simply because it enables them to raise funds immediately from institutional investors, often on attractive terms. It's also an effective way of optimizing financing costs.

For example ℹ️: in 2023, according to the Banque de France, more than 230 billion euros were raised by French companies via these debt securities. A record that testifies to market confidence in this short-term product.

What are commercial paper bills used for?

• meet short-term cash requirements
• finance a temporary operation (inventory, salaries, short-term investments)
• protect against customer payment delays
• take advantage of a fast-growing market opportunity

Have you ever had to wait endlessly for a customer transfer? The commercial paper is designed to alleviate such situations and avoid plunging into bank overdraft.

How does a commercial paper work? Terms and regulatory framework

In France, the issue and circulation of Billets de Trésorerie are regulated by the Autorité des Marchés Financiers (AMF) and the Banque de France. This security takes the form of an unlisted financial instrument, traded either on regulated markets such as Euronext, or over-the-counter, directly between the issuer and the investor.

Key features to remember:

• duration: from 1 day to a maximum of 1 year
• minimum amount per issue: €150,000
• beneficiaries: large corporations, ETIs, investment companies, public bodies, etc.
• investors: mainly institutional (banks, insurance companies, funds)

To issue commercial paper, a company must submit an application to the Banque de France, detailing its financial situation and the structure of the transaction. A risk rating is generally assigned by the rating agencies, which reassures potential investors.

The commercial paper is then issued under contract, mentioning :

• amount and due date
• interest rate (fixed or variable)
• repayment terms
• any guarantees or bank guarantees

Repayment is made at maturity, in a single instalment, with principal and interest paid.

Example ℹ️: Company X, listed on Euronext, needs to pay a major supplier within 15 days, but expects a customer payment within 30 days. With Karmen's advice and analysis, the company issues a 1-month commercial paper of 500,000 euros, pays its supplier, then reimburses the investor on receipt of the customer payment.

Who can issue and subscribe to a commercial paper?

Most large corporations or companies with strong balance sheets can use this solution. Issuers are generally required to :

• a good financial rating
• transparency of accounts
• a solid reputation in the markets

As for subscribers, they are almost exclusively institutional investors such as :

• banks
• insurance companies
• investment funds
• mutuals

Why this restriction? Because the amounts involved are high and the risks, though low, require financial expertise.

Other solutions also exist, such as :

• cession Dailly, to obtain an advance on invoice
• factoring, which enables you to sell your customer receivables to a factor
• seasonal credit, for seasonal needs

What are the advantages and limitations of commercial paper?

Commercial paper offers a number of major advantages for companies looking for flexible financing. However, it is not without its constraints.

Key benefits include

• speed of installation
• flexible amounts and durations
• generally lower cost than traditional bank loans
• no impact on existing banking relationships
• possibility of financing outside the traditional banking system

However, a number of points need to be borne in mind:

• reserved for financially strong companies
• high amounts required (minimum €150,000 per operation)
• limited access for unrated SMEs and startups
• dependence on investor confidence

Statistics: according to the Association Française des Entreprises Privées, the average rate for commercial paper in 2024 was 1 to 1.5 points lower than for traditional bank overdrafts.

Summary of advantages and disadvantages :

How to calculate the interest rate on a commercial paper?

The interest rate applied to commercial paper depends on several parameters:

• the duration of the operation
• the quality of the issuer's signature (rating)
• money market conditions
• the presence or absence of a bank guarantee

The shorter the term and the higher the rating, the lower the rate. Fixed rates are common, but variable rates are also available, often indexed to EURIBOR or EONIA.

Are you wondering whether to choose a fixed or variable rate? It all depends on how you expect market rates to evolve. In times of stability, a fixed rate is reassuring; in times of decline, a variable rate can be advantageous. That's why it's a good idea to find out all you need to know about calculating the cost of short-term financing, so you can choose the most suitable and secure option for your company over a given period.

Example ℹ️: an A-rated company issues a 3-month, €1 million bill at a fixed rate of 3.2%. At maturity, it repays €1,008,000 (principal + interest).

Commercial paper for banks: a tool for financial institutions too

Banks themselves regularly issue commercial paper, mainly to meet regulatory liquidity requirements or to diversify their short-term resources. In this case, the purchasers are generally other banks or large investors.

Why is it so popular with institutions? Because these securities, backed by solid banking signatures, offer enhanced security and market liquidity.

This use of commercial paper by banks contributes to the fluidity of the money market and the stability of the French financial system.

Billets de trésorerie, an attractive short-term investment for investors

Commercial paper is not just a means of financing for companies and banks: it also represents an attractive opportunity for investors looking for secure, liquid investments. Insurance companies and money-market funds often place part of their surpluses in this type of medium, as it offers a higher return than traditional deposits while retaining a short maturity. Thanks to their negotiable nature, commercial paper can easily be bought and sold, limiting the risk of capital immobilization.

For investors, this investment also enables them to diversify their securities portfolios without exposing themselves to the greater fluctuations of long-term equity or bond markets. By choosing securities issued by solid, highly-rated companies, you benefit from increased security and a predictable return, while indirectly contributing to the liquidity and smooth functioning of the financial market.

Ultimately, the commercial paper creates a bridge between the immediate financing needs of companies and the optimized management of investors' cash surpluses, each finding in this instrument a response adapted to their constraints or objectives.

Karmen Loan: the agile short-term financing solution for all businesses

We launched Karmen Loan to offer all businesses a flexible and rapid alternative to short-term financing. Unlike commercial paper, which is reserved for large corporations, our solution is aimed at SMEs and scale-ups alike, looking for an agile loan, from €30,000 to €5 million, with maturities ranging from1 to 24 months. Discover our free financing guide!

With Karmen Loan, you can finance your inventory, recruitment, working capital and marketing growth, without lengthy procedures or diluting your capital. After a rapid analysis of your file, funds are released in a matter of days, so you can seize every opportunity without delay.

"We created Karmen Loan to democratize access to short-term financing and support the growth of companies, whatever their size."

Conclusion

Commercial paper remains the instrument of choice for robust companies looking to obtain short-term funds quickly, while benefiting from competitive rates. While it remains reserved for structures with a good credit rating and a high level of financial transparency, it forms part of an overall strategy for cash management and optimizing the cost of financing.

For companies seeking flexibility, agility and simplified access to short-term financing, innovative solutions like Karmen Loan open up new prospects, without barriers to entry or heavy constraints.