Payments Academy
Acceptance: bank checked instruction PAYMENT OPERATIONS STARTED LIVE 01 Acceptance - means the bank has checked the instruction ACTIVE 02 Testing acceptance - means sending a valid instruction QUEUED 03 Bank posts a reversing entry - If the payment later fails QUEUED 04 Settlement timing after acceptance - can happen hours after acceptance and QUEUED 05 Tokyo supplier bank - worked example, the Tokyo supplier bank QUEUED 06 Testing - chain means tracing one payment through all QUEUED Acceptance means the bank has checked the instruction and agreed to process it, and it happens before any money moves. Step 1 of 6 Acceptance: bank checked instruction STARTED Acceptance means the bank has checked the instruction ACTIVE Testing acceptance means sending a valid instruction QUEUED Bank posts a reversing entry If the payment later fails QUEUED Settlement timing after acceptance can happen hours after acceptance and after QUEUED Tokyo supplier bank worked example, the Tokyo supplier bank QUEUED Testing chain means tracing one payment through all QUEUED Acceptance means the bank has checked the instruction and agreed to process it, and it happens before any money moves.
Testing acceptance PAYMENT OPERATIONS IN PROGRESS LIVE 01 Acceptance - means the bank has checked the instruction DONE 02 Testing acceptance - means sending a valid instruction ACTIVE 03 Bank posts a reversing entry - If the payment later fails QUEUED 04 Settlement timing after acceptance - can happen hours after acceptance and QUEUED 05 Tokyo supplier bank - worked example, the Tokyo supplier bank QUEUED 06 Testing - chain means tracing one payment through all QUEUED Testing acceptance means sending a valid instruction and confirming the acceptance report, and sending an invalid instruction and confirming a rejection instead. Step 2 of 6 Testing acceptance IN PROGRESS Acceptance means the bank has checked the instruction DONE Testing acceptance means sending a valid instruction ACTIVE Bank posts a reversing entry If the payment later fails QUEUED Settlement timing after acceptance can happen hours after acceptance and after QUEUED Tokyo supplier bank worked example, the Tokyo supplier bank QUEUED Testing chain means tracing one payment through all QUEUED Testing acceptance means sending a valid instruction and confirming the acceptance report, and sending an invalid instruction and confirming a rejection instead.
Bank posts a reversing entry PAYMENT OPERATIONS IN PROGRESS LIVE 01 Acceptance - means the bank has checked the instruction DONE 02 Testing acceptance - means sending a valid instruction DONE 03 Bank posts a reversing entry - If the payment later fails ACTIVE 04 Settlement timing after acceptance - can happen hours after acceptance and QUEUED 05 Tokyo supplier bank - worked example, the Tokyo supplier bank QUEUED 06 Testing - chain means tracing one payment through all QUEUED If the payment later fails, the bank posts a reversing entry, a credit of USD 120,000 back to the corporate account and a debit of USD 120,000 to the settlement account. Step 3 of 6 Bank posts a reversing entry IN PROGRESS Acceptance means the bank has checked the instruction DONE Testing acceptance means sending a valid instruction DONE Bank posts a reversing entry If the payment later fails ACTIVE Settlement timing after acceptance can happen hours after acceptance and after QUEUED Tokyo supplier bank worked example, the Tokyo supplier bank QUEUED Testing chain means tracing one payment through all QUEUED If the payment later fails, the bank posts a reversing entry, a credit of USD 120,000 back to the corporate account and a debit of USD 120,000 to the settlement account.
Settlement timing after acceptance PAYMENT OPERATIONS IN PROGRESS LIVE 01 Acceptance - means the bank has checked the instruction DONE 02 Testing acceptance - means sending a valid instruction DONE 03 Bank posts a reversing entry - If the payment later fails DONE 04 Settlement timing after acceptance - can happen hours after acceptance and ACTIVE 05 Tokyo supplier bank - worked example, the Tokyo supplier bank QUEUED 06 Testing - chain means tracing one payment through all QUEUED Settlement can happen hours after acceptance and after ledger posting, because it depends on clearing cut offs, correspondent availability and the time zone of the receiving bank. Step 4 of 6 Settlement timing after acceptance IN PROGRESS Acceptance means the bank has checked the instruction DONE Testing acceptance means sending a valid instruction DONE Bank posts a reversing entry If the payment later fails DONE Settlement timing after acceptance can happen hours after acceptance and after ACTIVE Tokyo supplier bank worked example, the Tokyo supplier bank QUEUED Testing chain means tracing one payment through all QUEUED Settlement can happen hours after acceptance and after ledger posting, because it depends on clearing cut offs, correspondent availability and the time zone of the receiving bank.
Tokyo supplier bank PAYMENT OPERATIONS IN PROGRESS LIVE 01 Acceptance - means the bank has checked the instruction DONE 02 Testing acceptance - means sending a valid instruction DONE 03 Bank posts a reversing entry - If the payment later fails DONE 04 Settlement timing after acceptance - can happen hours after acceptance and DONE 05 Tokyo supplier bank - worked example, the Tokyo supplier bank ACTIVE 06 Testing - chain means tracing one payment through all QUEUED In the worked example, the Tokyo supplier bank receives USD 120,000 at settlement, checks the beneficiary details, Step 5 of 6 Tokyo supplier bank IN PROGRESS Acceptance means the bank has checked the instruction DONE Testing acceptance means sending a valid instruction DONE Bank posts a reversing entry If the payment later fails DONE Settlement timing after acceptance can happen hours after acceptance and after DONE Tokyo supplier bank worked example, the Tokyo supplier bank ACTIVE Testing chain means tracing one payment through all QUEUED In the worked example, the Tokyo supplier bank receives USD 120,000 at settlement, checks the beneficiary details,
Testing: tracing payment through all PAYMENT OPERATIONS COMPLETE LIVE 01 Acceptance - means the bank has checked the instruction DONE 02 Testing acceptance - means sending a valid instruction DONE 03 Bank posts a reversing entry - If the payment later fails DONE 04 Settlement timing after acceptance - can happen hours after acceptance and DONE 05 Tokyo supplier bank - worked example, the Tokyo supplier bank DONE 06 Testing - chain means tracing one payment through all ACTIVE Testing the chain means tracing one payment through all four accounts and confirming each debit has a matching credit. Step 6 of 6 Testing: tracing payment through all COMPLETE Acceptance means the bank has checked the instruction DONE Testing acceptance means sending a valid instruction DONE Bank posts a reversing entry If the payment later fails DONE Settlement timing after acceptance can happen hours after acceptance and after DONE Tokyo supplier bank worked example, the Tokyo supplier bank DONE Testing chain means tracing one payment through all ACTIVE Testing the chain means tracing one payment through all four accounts and confirming each debit has a matching credit.

Key points of this lesson, in order.

0:00 / 3:46 Step 1 of 6

Ledger Posting versus Settlement

Payment Operations Architecture: State, Resilience and Control, Lesson 5 of 8, Narration 3:46, D11 Operations, exceptions and reconciliation

IrrevocableSettlementT-account

What you will learn

Your objective. By the end of this lesson, you will be able to explain ledger posting versus settlement. Acceptance means the bank has checked the instruction and agreed to process it, and it happens before any money moves.

Why it matters. This matters because operations is where payments are reconciled, investigated and fixed. The work in this lesson is what keeps the money right.

Chapter objective: How payments are tracked, recovered and controlled in operations

Key learning points

  • Acceptance: bank checked instruction
  • Testing acceptance
  • Bank posts a reversing entry
  • Settlement timing after acceptance
  • Tokyo supplier bank
  • Testing: tracing payment through all

Key terms

Irrevocable: A payment or instruction that cannot be cancelled or reversed once it has been made, except by agreement of all parties or by a court order.

Settlement: The final movement of funds between banks to discharge obligations created by cleared payments. Settlement is usually made in central bank money or through correspondent accounts.

T-account: A ledger representation of an account shaped like the letter T, with debits on the left and credits on the right.

Banking architecture diagram showing Ledger Posting versus Settlement.

Insights and practice scenarios

Worked insights and practice scenarios for this lesson. Each one is a reusable PaymentForge case, so the same case may appear in more than one lesson.

Practise this lesson

Exercise

Decide which settlement model fits the scenario in this lesson and explain why.

Use the settlement models, the liquidity trade-off and the finality rules in this lesson.

  1. What to do. Name the model, state when settlement becomes final, and explain what happens if the sending bank does not have enough liquidity.

Correct result. Real time gross settlement settles each payment individually in central bank money with immediate finality, but it needs liquidity for every payment. Deferred net settlement nets payments and settles the net position, which needs less liquidity but leaves settlement risk until the net settles.

Why. Settlement is where money actually moves. The model decides the risk, the liquidity need, and when the payment is truly final.

Check your understanding

Practice question

Which of the following best describes ledger posting versus settlement?

Takeaway and next step

What to remember

A ledger entry records the payment in the bank books, and it is a debit and a credit that must always balance.

Follow USD 120,000 through every stage, from instruction to beneficiary credit, and note where it can stop.

Open the Payment Lifecycle Simulator →

The architecture view of ledger posting versus settlement, building on ch40, Internal Ledger, Clearing and Settlement Reconciliation. This lesson is about how the state machine and the ledger interact, not how an analyst reconciles.

Transcript and full text

Show transcript

Acceptance means the bank has checked the instruction and agreed to process it, and it happens before any money moves. The bank has validated the format, the account, the funds and the compliance checks, and it has told the customer the payment is accepted, usually through a status report. Acceptance does not move money, does not change any balance, and does not guarantee settlement, because a payment can still fail at the clearing system or at the correspondent. In the worked example, Meridian Bank accepts the USD 120,000 instruction from the London corporate at twelve minutes past nine in the morning, sends an acceptance report, and reserves USD 120,000 on the corporate account so the funds cannot be spent elsewhere. Testing acceptance means sending a valid instruction and confirming the acceptance report, and sending an invalid instruction and confirming a rejection instead. A ledger entry records the payment in the bank books, and it is a debit and a credit that must always balance. When Meridian Bank accepts the USD 120,000 payment, it posts a debit of USD 120,000 to the corporate customer account and a credit of USD 120,000 to its internal settlement account, so the corporate balance falls by USD 120,000. The ledger entry is the record of the obligation, and it exists even before settlement, which is why the customer sees the money leave the account while the supplier has not yet been paid. If the payment later fails, the bank posts a reversing entry, a credit of USD 120,000 back to the corporate account and a debit of USD 120,000 to the settlement account. Testing ledger posting means checking every payment creates equal debits and credits, and checking a failed payment creates a reversing entry. Settlement is the final movement of funds between banks, and it is the moment the payment becomes irrevocable. For the worked example, settlement happens when Meridian Bank pays USD 120,000 across its correspondent account at Harbour Bank, and Harbour Bank confirms the funds are received and available. Settlement can happen hours after acceptance and after ledger posting, because it depends on clearing cut offs, correspondent availability and the time zone of the receiving bank. The Tokyo supplier bank receives the funds only at settlement, and until that moment the payment can still be stopped, returned or reversed by the sending bank. Testing settlement means confirming the settlement account moves by exactly USD 120,000, confirming the confirmation arrives, and confirming the payment state changes to settled only when the confirmation is received. Crediting the customer account is the last step, when the receiving bank posts the funds to the beneficiary account, and it happens only after settlement. In the worked example, the Tokyo supplier bank receives USD 120,000 at settlement, checks the beneficiary details, and credits USD 120,000 to the supplier account, less any charges the supplier agreed to bear. The supplier sees the money only at this point, even though the London corporate saw its account debited hours earlier, and that gap is normal in cross border payments. A T-account view makes the whole chain clear, with the corporate account debited USD 120,000, the Meridian settlement account credited then debited USD 120,000, the Harbour correspondent account credited then debited USD 120,000, and the supplier account credited USD 120,000. Testing the chain means tracing one payment through all four accounts and confirming each debit has a matching credit.

Acceptance means the bank has checked the instruction and agreed to process it, and it happens before any money moves. The bank has validated the format, the account, the funds and the compliance checks, and it has told the customer the payment is accepted, usually through a status report. Acceptance does not move money, does not change any balance, and does not guarantee settlement, because a payment can still fail at the clearing system or at the correspondent. In the worked example, Meridian Bank accepts the USD 120,000 instruction from the London corporate at twelve minutes past nine in the morning, sends an acceptance report, and reserves USD 120,000 on the corporate account so the funds cannot be spent elsewhere. Testing acceptance means sending a valid instruction and confirming the acceptance report, and sending an invalid instruction and confirming a rejection instead.

A ledger entry records the payment in the bank books, and it is a debit and a credit that must always balance. When Meridian Bank accepts the USD 120,000 payment, it posts a debit of USD 120,000 to the corporate customer account and a credit of USD 120,000 to its internal settlement account, so the corporate balance falls by USD 120,000. The ledger entry is the record of the obligation, and it exists even before settlement, which is why the customer sees the money leave the account while the supplier has not yet been paid. If the payment later fails, the bank posts a reversing entry, a credit of USD 120,000 back to the corporate account and a debit of USD 120,000 to the settlement account. Testing ledger posting means checking every payment creates equal debits and credits, and checking a failed payment creates a reversing entry.

Settlement is the final movement of funds between banks, and it is the moment the payment becomes irrevocable. For the worked example, settlement happens when Meridian Bank pays USD 120,000 across its correspondent account at Harbour Bank, and Harbour Bank confirms the funds are received and available. Settlement can happen hours after acceptance and after ledger posting, because it depends on clearing cut offs, correspondent availability and the time zone of the receiving bank. The Tokyo supplier bank receives the funds only at settlement, and until that moment the payment can still be stopped, returned or reversed by the sending bank. Testing settlement means confirming the settlement account moves by exactly USD 120,000, confirming the confirmation arrives, and confirming the payment state changes to settled only when the confirmation is received.

Crediting the customer account is the last step, when the receiving bank posts the funds to the beneficiary account, and it happens only after settlement. In the worked example, the Tokyo supplier bank receives USD 120,000 at settlement, checks the beneficiary details, and credits USD 120,000 to the supplier account, less any charges the supplier agreed to bear. The supplier sees the money only at this point, even though the London corporate saw its account debited hours earlier, and that gap is normal in cross border payments. A T-account view makes the whole chain clear, with the corporate account debited USD 120,000, the Meridian settlement account credited then debited USD 120,000, the Harbour correspondent account credited then debited USD 120,000, and the supplier account credited USD 120,000. Testing the chain means tracing one payment through all four accounts and confirming each debit has a matching credit.

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