FX Remittance Accounting — From Order to Settlement with the Counterparty

When a customer says "send 5000 dollars to Dubai," in their mind a simple task has happened: money went from here to there. But in your books, this one sentence lights up an accounting chain that stays open until the moment of settlement with the counterparty at the destination. If this chain is not recorded correctly, you very soon reach a point where you do not know how much you owe each counterparty and which remittance is still unsettled.

This article is about the accounting of remittance, not its types. That is, from the moment the order is recorded to the moment of settlement, what happens in your books and what must be recorded. If you want to know how many types of remittance there even are and what structure each has, types of remittance explains that separately. To see where this discussion fits in the bigger picture of exchange operations, the complete guide to currency exchange accounting and operations is the reference point.

Remittance is a chain, not an event

The main difference between a remittance and a cash trade is right here: a cash trade finishes in the same moment, but a remittance has a span of time. Between the moment you receive the money from the customer and the moment the destination counterparty delivers the money to the recipient and you then settle with that counterparty, there is a gap. In this gap, the money is not "lost" in your books; it turns into a liability.

For this reason, remittance accounting has three distinct steps, each of which creates its own entry: receipt from the customer, creating a liability to the destination counterparty, and settlement with the counterparty. If all three steps are not recorded, somewhere in the chain stays open, and that is exactly where the money gets lost.

Step 1: recording the order and receipt from the customer

Suppose a customer brings 5000 dollars to send to Dubai and you take a 50 dollar fee. The first thing that happens is that the money enters your till and, in return, you create an obligation: 5000 dollars must reach the recipient in Dubai.

At this moment your dollar till is debited 5050 dollars (the real money you have received), against it the remittance obligation of 5000 dollars is credited (what you must deliver) and the 50 dollar fee is recorded as income (credit). Note that the fee is kept separate from this very first step; if you mix it in with the remittance amount, later neither the profit comes out right nor the settlement.

Step 2: the liability to the destination counterparty

Now you must arrange for the 5000 dollars to be paid in Dubai. This is done by your counterparty in Dubai — an exchange or partner with whom you have an inter-office account. When they pay the recipient, they have effectively spent from their own pocket and you become indebted to them.

Here the concept of the counterparties' inter-office account is the heart of the matter. This account is like a ledger of the relationship between you and that counterparty: every remittance they pay on your behalf increases your debt, and every settlement you make reduces it. At every moment, the balance of this account says "how much I owe Dubai" or "how much Dubai owes me."

So in the second step, the 5000 dollar remittance obligation you created in the first step is closed and, in its place, a specific 5000 dollar liability settles into the inter-office account of the Dubai counterparty. Now the money is no longer in the air; it has a name, an owner, and is traceable in the books. Managing these debts and credits correctly is a topic that receivables and payables addresses in detail.

Step 3: settlement with the counterparty

The chain completes when you settle with the Dubai counterparty. This settlement may take various forms: a return remittance from their side that neutralizes the debt, a separate payment, or even the result of several back-and-forth remittances that are netted at period end (netting).

At the moment of settlement, your 5000 dollar liability in the inter-office account is closed and, against it, whatever you gave for settlement (money, a counter-remittance, or a deduction from another receivable) is recorded. When this step is done correctly, the inter-office account balance shows exactly what really remains between you and the counterparty — not an old, irrelevant number.

Where money gets lost

Most losses in remittance come not from theft, but from a step not being recorded. A few common examples:

• Fee mixed into the remittance principal: when you do not separate the 50 dollar fee, the settlement amount with the counterparty comes out wrong and your profit is not visible either.
• The liability to the counterparty is not recorded: you took the money from the customer, the counterparty also paid, but the liability has not settled into the inter-office account. Now the balance adds up but does not tell the truth.
• The settlement is not recorded: the counterparty really settled, but in the books you are still shown as owing them; a ghost debt that has no external existence.
• Remittance in the wrong currency: the dollar side is recorded in the rial account or vice versa and the whole multi-currency balance falls apart.

Each of these seems small on its own, but when multiplied over hundreds of remittances a month, it reaches a discrepancy no one knows the source of.

How to keep the chain without a gap

The solution is that the three steps be locked together and none be recorded manually and separately. In Nexto, a remittance begins as an order: customer, amount, currency, destination and fee are entered in one place. From that moment, the receipt from the customer, the remittance obligation and the liability to the counterparty's inter-office account are built automatically, and when the settlement is recorded, that counterparty's debt is closed. Because everything is tied to one order, no step is left out and at every moment you know which remittance is open and exactly what each counterparty's balance is. The customer can also track their remittance status through the portal without needing to phone.

Conclusion

An FX remittance is a three-step chain: receipt from the customer and creating an obligation, converting that obligation into a specific liability in the counterparty's inter-office account, and finally settlement that closes the debt. The fee must stay separate from the remittance principal and each step must have its own entry. When these three steps are locked together and automatic, no remittance gets lost in the gap between order and settlement and each counterparty's balance always reflects reality.