“Payment in Kind” (or PIK) is a concept dating back to ancient times when commerce involved bartering, often with livestock. Given these roots, the “K” in PIK is believed by some to have evolved from the Old English word “kine”, which means “cattle” (i.e. payment in cattle). If we fast forward to today, lenders are still using PIK as a form of compensation – in lieu of receiving regularly scheduled cash interest payments, the accrued interest is added to the principal debt balance for payment at a later date.
So how did we go from bartering livestock to deferring cash interest payments? In this article, we explore the evolution of PIK and examine how different lenders use it.