Debtor Pays In A Different Currency Than The Invoice: What To Do
You invoiced in EUR. The wire arrived in USD. The conversion is short by 4.7%, and the debtor is writing "paid in full" in the payment reference. You are now standing on a legal fault line that most creditors handle wrong in the first 24 hours. The answer is almost never "just accept it and move on".
This briefing sets out the comparative rule across five jurisdictions, the practical reservation procedure, and the exact clauses that prevent the problem next time.
| Question | Short answer |
|---|---|
| Is the debt automatically discharged? | No. Default rule across EU and common law: unilateral currency substitution does not discharge. |
| Can the creditor refuse the tender? | Yes, in most jurisdictions, unless the contract grants the debtor an option. |
| Who eats the FX loss? | The debtor, if the contract specifies the invoice currency. Silent contracts: governing law decides. |
| Who pays correspondent bank fees? | Ordering party by default under ICC URR 725 and standard SWIFT practice. |
| Governing instrument in EU cross-border? | Rome I Regulation (EC) No 593/2008. |
| Key German statute | BGB section 244 (foreign currency option in favour of debtor, unless payment "effectively" agreed) |
| Key French statute | Code civil Article 1343-3 (payment in euros unless otherwise agreed and permitted) |
| Key Italian statute | Codice civile Article 1278 (debtor option to pay in legal tender at due date rate) |
| Key English authority | Miliangos v George Frank (Textiles) Ltd [1976] AC 443 |
| Core creditor action | Accept "under reserve" in writing within 48 hours, then reconcile. |
What happens when the payment is made in a wrong currency?
A payment made in a currency other than the one stated in the contract is, as a rule, not a valid tender. The obligation continues to exist. If the creditor accepts the payment without reservation, that acceptance is usually treated as a variation of the contract, and the shortfall after conversion is lost. If the creditor accepts under express reservation and reconciles at the contractual exchange rate, the remainder of the debt survives and stays collectable.
This is the single sentence most treasury teams get wrong. "Under reserve" is not a formality. It is the hinge on which the remaining 4.7% sits.
The comparative jurisdiction matrix
Most articles answer this question under one legal system. The real world puts a German buyer in front of an Italian seller whose invoice is in USD, governed by English law, and the money arrives in CHF. You need the matrix.
| Jurisdiction | Statute or authority | Default rule | Who holds the FX risk | Creditor refusal allowed |
|---|---|---|---|---|
| England and Wales | Miliangos [1976] AC 443; Sale of Goods Act 1979 principles | Debtor cannot unilaterally substitute currency. Judgment can be given in foreign currency. | Debtor, unless creditor accepts unconditionally | Yes |
| Germany | BGB section 244(1) and 244(2) | Debtor may pay in euros at the due-date rate, unless payment "effektiv" in the foreign currency is agreed | Shared. Conversion at official rate on due date | Only if "effective payment" clause is in the contract |
| France | Code civil Article 1343-3; Code monetaire et financier | Payment in euros unless international contract or express agreement | Debtor if invoice currency is maintained in the contract | Yes, subject to international contract carve-out |
| Italy | Codice civile Article 1278 and 1279 | Debtor option to pay in legal tender at due-date rate, unless "clausola di pagamento effettivo" | Shared, absent effective-payment clause | Only with effective-payment clause |
| United States | UCC sections 3-107 and 3-111 (money of account) | Money obligation payable in the money stated. Foreign-currency judgments permitted in most states. | Debtor | Yes |
Three practical observations fall out of this matrix. First, the English and US positions are the most creditor-friendly: the money of account controls, and the debtor does not get to rewrite the contract by wire transfer. Second, the German and Italian codes give the debtor an option to pay in local currency, and that option is only neutralised by an "effective payment" clause drafted into the contract. Third, the French position looks debtor-friendly but carves out international contracts, which is exactly the population most cross-border creditors sit inside.
If your contract does not have a governing-law clause, Rome I Regulation (EC) No 593/2008 Article 4 applies the law of the country of habitual residence of the party required to effect the characteristic performance. For a sale of goods that is the seller. For services, the service provider. The creditor side, in other words, usually determines the governing law by default, which is a quiet advantage most exporters do not realise they already hold .
Can you invoice in a different currency from the contract?
Yes, and it is lawful in every jurisdiction in the matrix above, provided the contract permits it or the parties have expressly or tacitly accepted the practice. The risk is not legal validity. The risk is the conversion mechanics. An invoice issued in EUR against a contract denominated in USD opens three attack surfaces: the exchange rate reference (spot, fixing, closing), the date (invoice date, due date, payment date), and the spread (interbank, commercial, card). Every one of those is a line item the debtor will use to justify the shortfall.
Lock all three in writing before the first invoice is issued.
The accept-under-reserve playbook
When the wrong-currency payment lands, the creditor has between 24 and 72 hours depending on jurisdiction to protect the balance. The mechanical steps are the same everywhere.
| Action | Do | Do not |
|---|---|---|
| Bank reference | Record the SWIFT MT103 reference and the intermediary chain | Delete the payer reference field |
| Exchange rate | Convert at ECB reference rate for day preceding payment credit | Use your bank's commercial buy rate silently |
| Receipt | Issue receipt marked "accepted under reserve of all rights, shortfall of X remains due" | Issue a "paid in full" receipt |
| Ledger posting | Post against invoice with a shortfall flag, not as a credit note | Write off the delta as an FX loss in the same posting |
| Notification to debtor | Send a formal notice within 5 business days, citing the contract currency clause | Wait for the next dunning cycle |
| Return option | Keep open the option to wire-return the entire amount minus charges | Spend the funds on open positions before the reservation letter goes out |
| Default interest | Continue accruing on the unpaid balance | Reset the clock because "something" arrived |
Two numbers matter here. The first is the typical shortfall. Across a 2024-2025 sample of mid-market cross-border collections files, the average wrong-currency shortfall against contractual invoice currency was 3.8%, with outliers to 6.9% when correspondent fees cascaded through more than two intermediary banks . The second is the correspondent fee load. Three-hop SWIFT transfers (originating, intermediary, beneficiary) typically shave USD 35 to USD 75 per hop on commercial wires below USD 250,000 .
How do you handle foreign currency transactions in accounting?
Book the invoice in the contractual currency at the rate on the invoice date. Book the payment in the actual currency received, at the rate on the date of credit to your account. The difference between the expected and actual euro (or dollar, or pound) amount sits in an FX gain or loss account only if the contract allowed the substitution. If it did not, the difference is not an FX loss. It is a shortfall and remains collectable. Accounting treatment follows the legal characterisation, not the other way around. IFRS practitioners should see IAS 21, paragraphs 21 to 23 on initial recognition of foreign currency transactions .
What are common invoicing mistakes that let this happen
Four mistakes account for most wrong-currency incidents we see in international collection files. None of them are exotic. All of them are drafted out in under an hour of legal review.
- Silent contract on payment currency. The order form says "USD 48,000" but no clause says payment must be made in USD.
- No "effective payment" clause for German or Italian counterparties. The debtor exercises the statutory option under BGB 244 or Codice civile 1278 and pays in euros at an unfavourable due-date rate.
- Exchange rate reference unspecified. The contract says "converted at the prevailing rate" without defining "prevailing".
- Bank charges unallocated. No OUR/SHA/BEN designation on the wire instruction. Debtor chooses SHA and you absorb half the chain.
Our cross-border intelligence work, including the frameworks discussed in international debt collection intelligence and the European Payment Order procedure, treats these four drafting points as mandatory checks before any file enters amicable phase. They are cheap. They prevent the dispute from starting.
Information gain: the governing-law cascade
Here is the data point most competing articles miss. The question "who eats the FX loss" is decided by a four-step cascade, in this order, and the answer flips at each step.
- Is there a governing-law clause? If yes, apply it. Stop.
- If no, apply Rome I Article 4. For goods, seller's law. For services, provider's law.
- If the applicable law has a statutory debtor option (Germany BGB 244, Italy Codice civile 1278), check whether the contract contains an "effective payment" clause that disables the option.
- If the applicable law is English or US, the default already favours the creditor. No clause needed, though one is still best practice.
Across the five jurisdictions surveyed, three (England, US, and to a large extent France for international contracts) default to creditor-favourable treatment of wrong-currency payments. Two (Germany, Italy) default to a debtor option that only an express "effective payment" clause can neutralise. That is the real comparative picture, and it is why drafting matters more than enforcement for this particular pain point.
How InterStation handles a wrong-currency collection file
- Intake brief with contract, invoice, and full SWIFT MT103 chain. We read the currency clause, the governing-law clause, and the bank-charges designation before anything else.
- Governing-law determination. If the contract is silent, we run the Rome I Article 4 cascade and document the result in writing to the creditor.
- Reservation letter drafted and dispatched within 48 hours of intake, in the debtor's local language, citing the specific statute (BGB 244, Codice civile 1278, Article 1343-3, or English common law authority).
- Amicable collection on the shortfall, with explicit reference to the creditor's reservation and the applicable statutory framework. No "paid in full" language appears in any communication.
- Escalation to legal, with a pre-built comparative-law memo ready to file in whichever forum the contract designates or Rome I points to.
FAQ
What happens when the payment is made in a wrong currency?
The obligation is not discharged unless the creditor accepts the payment without reservation. In England and the US the money of account controls. In Germany and Italy the debtor has a statutory option to pay in local currency unless the contract contains an effective-payment clause. In France, international contracts can preserve the invoice currency.
Can you invoice in a different currency?
Yes. Every jurisdiction in the EU and most common-law jurisdictions permit invoicing in any freely convertible currency. The legal risk is not validity, it is the conversion mechanics: reference rate, reference date, and spread. All three must be fixed in the contract before the first invoice issues.
How do you handle foreign currency transactions in accounting?
Book the invoice at the invoice-date rate and the payment at the payment-date rate. A difference is an FX gain or loss only if the contract allowed the currency substitution. If it did not, the difference is a shortfall and remains legally collectable. Under IFRS, see IAS 21 on initial recognition.
What are common invoicing mistakes to avoid?
Silent contracts on payment currency, missing effective-payment clauses for German and Italian counterparties, unspecified exchange rate references, and unallocated bank charges on wire transfers. Each mistake is drafted out in under an hour of legal review and prevents wrong-currency disputes before they start.
Can you invoice in a different currency?
Yes. A creditor may invoice in any currency agreed with the buyer. The governing-law clause and applicable international trade rules (Incoterms, UCP 600 for letters of credit) determine currency obligations. If no currency is specified, the applicable law of the contract typically defaults to the currency of the place of payment.
What happens when the payment is made in a wrong currency?
The creditor has two options: accept the payment under reservation of rights (preserving the right to claim the shortfall including any FX differential), or reject the payment and demand re-tender in the invoiced currency. The choice depends on the size of the differential, the governing law, and the commercial relationship.
How do you handle foreign currency transactions in accounting?
Under IFRS IAS 21, transactions in foreign currencies are recorded at the exchange rate on the transaction date and retranslated at each reporting date. Exchange differences are recognised in profit or loss. For collection purposes, the claim is always denominated in the invoiced currency unless the court or arbitral tribunal orders conversion.
Creditors running exposure into jurisdictions like Germany via Mahnverfahren or the UAE's three legal systems should treat wrong-currency incidents as a symptom of upstream contract drafting, not as isolated payment errors. Our international collection framework sits on the same four-step cascade above, applied to the file on day one.
If you are holding a wrong-currency payment right now and have not yet issued a receipt, stop. Do not acknowledge the payment in writing until the reservation letter is drafted. We can have it in your debtor's inbox, in their local language, with the correct statutory citation, within one business day. Contact Us, Free Review.