A settlement currency is the currency in which a payment obligation is finally discharged between parties or financial institutions. It can differ from the invoice, funding or display currency.
How can currencies differ in one payment?
A supplier may invoice in USD, the payer may fund in AUD and the recipient may ultimately receive PHP. The payment route determines where conversion occurs and which currency settles each obligation.
Settlement vs. transaction currency
The transaction or invoice currency expresses the commercial amount. The settlement currency is used to complete payment between relevant parties. Providers sometimes use an additional internal settlement currency.
Why does the choice matter?
It affects exchange-rate exposure, liquidity, fees, cut-offs and account requirements. A party assuming it will receive the invoice currency may instead receive a converted amount.
What should a quote show?
- Funding currency
- Conversion rate and timestamp
- Settlement or payout currency
- Expected recipient amount
- Fees and possible deductions
- Expiry and payment route
How should it be reconciled?
Record all relevant currency amounts, rates, fees, value dates and provider references. Do not infer the settlement currency from the user-interface display alone.
