Two-Name Paper

Companies use commercial paper to smooth out their near-term finances. These financial instruments represent short-term loans.

Need money for payroll next week, but still waiting for the check from your biggest customer to clear? Float some commercial paper. It will let you make that payroll...and once your revenues roll in, you can pay off the paper.

Two-name paper is a nickname for a particular type of this commercial paper. It represents a form of financial instrument known as a "trade acceptance." These work like IOUs. Like, "Give me 100 tons of salad oil today, and I'll give you $50,000 next week." These trade acceptances can be sold. You don't want to wait for the $50,000, so you sell it to someone else for $49,000. You get certain cash. They get a $1,000 profit for having the patience to wait a week for the payment.

For this to work, the instrument needs two signatures: the issuer (the party who owes the money) and the receiver (the party getting paid). Hence the name "two-name paper." It has both these required signatures.