Settlement receivables and float

The timing gap between collecting funds from a payer and paying out to the merchant or end recipient creates a settlement receivable and payable that are financial instruments requiring classification, measurement and expected credit loss assessment under IFRS 9; treating this float as risk-free cash can materially understate credit and concentration risk disclosed to users, especially where a small number of banks or schemes concentrate the exposure.

How long is the settlement cycle for each rail (card scheme, bank transfer, wallet), and at what point does an unconditional right to cash arise? Is there a legal right of set-off with the same counterparty before netting the receivable and payable? What is the credit standing of the scheme/acquiring bank counterparty during the float period?

1) Map the settlement cycle for each rail (card scheme, bank transfer, wallet) and identify the exact point an unconditional right to cash arises. 2) Recognize a settlement receivable from the scheme/acquiring bank when that unconditional right exists, and a payable to the merchant when the obligation to pay out crystallizes. 3) Confirm whether a legal right of set-off exists before netting receivable and payable balances with the same counterparty; do not net across different counterparties. 4) Classify the receivable per the business model test (held to collect contractual cash flows -> amortized cost). 5) Apply the general ECL model (12-month ECL unless credit risk has increased significantly), not the simplified approach, because these balances are not IFRS 15 trade receivables or contract assets (see measurement). 6) Track FX-denominated settlement legs separately for IAS 21 retranslation.

Measure short-term settlement receivables at amortized cost given held-to-collect intent and short duration. Apply the general ECL model: these balances are not trade receivables or contract assets arising under IFRS 15, so the simplified approach is not available. On initial recognition, recognize 12-month ECL (Stage 1); because the exposure lasts only days (less than 12 months), 12-month and lifetime ECL are the same amount, typically small, but do not assume zero risk purely because the cycle is short. Assess each scheme/bank counterparty's credit standing; move a balance to lifetime ECL (Stage 2) if credit risk increases significantly, for example when a scheme delays settlement beyond the normal cycle or a counterparty is downgraded, and to Stage 3 if it becomes credit-impaired; remeasure promptly if a dispute arises. A separate receivable for the entity's own fees from merchants is an IFRS 15 trade receivable and, absent a significant financing component, is measured under the simplified approach (lifetime ECL).

Disclose: settlement assets and liabilities presented separately from trade receivables/payables where material; the ECL methodology and key assumptions for settlement balances; concentration with a small number of banks or schemes; the basis for any gross/net presentation; and FX exposure on cross-border settlement legs.

• Treating settlement float purely as cash with no credit risk assessment
• netting receivables and payables to different counterparties without a legal right of set-off
• ignoring FX exposure on cross-border settlement legs
• using a single ECL rate for all scheme/bank counterparties regardless of credit standing
• failing to re-assess the ECL when a scheme delays settlement beyond the normal cycle (a possible stage-2 trigger).