Commercial paper is a short-term, bearer debt instrument issued by a company or government body. It is a good alternative to standard fixed-term deposits.
The spread for commercial paper is higher than for deposits. For a fixed-term deposit of one month, banks generally pay 4 or 5 basis points less than the Euribor (the interbank borrowing rate). For commercial paper with the same term, the rate varies from 8 basis points below to 35 basis points above the Euribor.

Commercial paper is becoming increasingly popular
Commercial paper is a very new financial instrument on the European market but the use of it has been growing steadily.
Commercial paper is a very flexible form of funding - it is as user-friendly as a bank loan and can be issued in accordance with the requirements of the issuer or investor. The term for commercial paper is generally from a few days to a year.
For the issuer, this instrument has the advantage of them being able to raise funds by ways other than standard bank or bond funding. An increasing number of companies and institutions are using commercial paper for their funding requirements due to the fact that short-term loans are expensive.

A flexible funding instrument
Commercial paper is issued as part of a programme. This is arranged by a financial institution (the arranger) and the paper is placed with investors through financial intermediaries (the dealers).
Once the programme has been approved by the competent authorities, the issuer can issue the debt securities according to their requirements. The debt securities are called certificates of deposit if they are issued by a credit institution ; they are called treasury certificates if they are issued by a private company or public institution.
The instruments are placed with investors by the dealer on a best effort basis. This means the issuer has no guarantee of the amount taken up or the terms and conditions.
On the other hand, the issuer may, depending on the maturity dates of the previous tranches, continue to issue new debt securities. New issues are very flexible, so they can easily be tailored to the requirements of the issuer or the investor. However, the maximum amount of the programme may never be exceeded. 

Higher return entails higher risk
Commercial paper is not risk-free. A treasury manager wishing to purchase commercial paper has to be fully aware of this. Commercial paper is a short-term debt instrument and there is a risk - however minor - of the issuer being unable to fulfil their debt service obligations.
The higher the return, the higher the risk - this is also true for commercial paper. A company or institution with a high credit rating, and so high creditworthiness, will pay a lower interest rate than a company or institution with a lower rating or no rating at all.

The commercial paper market is fairly liquid
Commercial paper is not only a very flexible instrument for the issuer. Financial institutions have set up a secondary market in commercial paper, so the paper is very readily negotiable. It is thus fairly easy for investors to sell their treasury certificates or certificates of deposit prior to maturity if necessary.
Activity is especially buoyant towards the end of each quarter, because many companies are not allowed to carry commercial paper without a rating in their books.
In addition, selling commercial paper is less expensive than withdrawing funds from a fixed-term deposit prior to maturity.

Is commercial paper an attractive prospect for your company?
Only a limited number of companies use commercial paper as an instrument for managing their surplus cash. Lack of knowledge of the minimum amounts is probably one of the reasons for this. In the long run, the increasing number of commercial paper programmes should result in the minimum amount being reduced.
However, whether or not you wish to invest in commercial paper depends on your internal corporate policy. Some companies only consider the risk - they may, for instance, only buy paper with a state guarantee. Others try to take advantage of interest-rate trends by spreading their investments. If interest rates are falling, they invest partly in the long term and partly in the very short term. If interest rates are rising, they opt for very short-term commercial paper.
In practice, it is clear that interested companies often start by trying out paper with a state guarantee. They then buy paper for the minimum amount and the minimum term.