A foreign currency invoice states the amount payable in a currency different from the buyer’s or seller’s functional or accounting currency. The invoice currency determines the contractual amount, while accounting rules and settlement timing determine how each party records exchange differences.
What should the invoice state?
- Invoice currency and amount
- Unit prices, taxes, discounts and totals in the stated currency
- Payment terms, due date and accepted payment route
- Beneficiary details appropriate for that currency
- Any contractual exchange-rate source or currency-adjustment rule
- Purchase order, contract and delivery references
How does exchange-rate accounting arise?
Assume an illustrative USD 10,000 invoice is recorded when USD 1 equals PHP 56.00. Its initial PHP value is PHP 560,000. If it is settled when USD 1 equals PHP 57.00, purchasing USD 10,000 requires PHP 570,000 before fees. The illustrative PHP 10,000 difference reflects exchange-rate movement between recognition and settlement.
Illustrative exchange difference = settlement value in functional currency − initial recorded value. The accounting treatment, rate dates and tax consequences depend on applicable standards and policy; the example only shows the arithmetic.
Invoice currency vs. payment currency
The invoice currency states the obligation. A payer may fund the payment in another currency if the provider converts it, but the parties should confirm the conversion method and amount that will satisfy the invoice. The expected Recipient Amount matters because fees or conversion can create a shortfall.
What should be reconciled?
Keep the invoice amount, booking rate and source, functional-currency value, payment date, customer rate, fees, amount sent, amount received and exchange difference. Do not treat the exchange difference, provider fee and FX markup as the same cost.
