Issuing commercial papers to finance accounts receivable or short-term financing needs lies at the low end of the pecking order of trade financing alternatives.

Question

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Commercial papers are typically used by corporations to finance their short-term needs, including accounts receivable and inventory, but the pecking order theory suggests that companies prefer internal financing first, then debt, and equity as a last resort. Commercial papers, being a form of debt, do not necessarily lie at the low end of trade financing alternatives according to this theory.

Issuing Commercial Papers to Finance Accounts Receivable or Short-Term Financing