What is an exchange rate difference on an invoice?

An exchange rate difference is the gap between the value of an invoice converted at the official rate and the money that actually reaches your account after your bank converts the payment at its own rate. The client has paid in full. The invoice is settled. The difference is a separate accounting entry, booked by your accountant from the invoice and the bank statement, and it can be a gain as easily as a loss.

Billingz Guides · Currency

Exchange rate (FX) differences: why less money arrives than you invoiced

Short answer

You invoice a foreign client for 1,000 euro. They pay all of it. Your account, held in another currency, shows less than the official rate says it should. That gap is an exchange rate difference. The invoice is settled, the client owes nothing, and the difference is a separate line in your books that your accountant works out from two documents: the invoice and the bank statement.

Where the gap comes from

Central banks publish one official rate a day. Your bank does not use it. It buys your euro at its own rate, a little below the official one, and the spread is how it earns on the transfer.

Take round numbers. Say the official rate is 100 units of your currency to the euro. A 1,000 euro invoice is worth 100,000 on paper. Your bank buys at 99, so 99,000 lands in the account and 1,000 is gone. The figures here are deliberately round: your currency, and the spread your bank takes, will both be different.

Nothing has gone wrong. Two different rates were applied to the same money at two different moments, which is what happens every time value crosses a currency.

Three rates, not one

Most of the confusion here comes from treating “the exchange rate” as a single number. A bank quotes three, and they are never the same.

The buying rate - what the bank pays you when it takes foreign currency off your hands. The lowest of the three, and the one applied when a euro payment lands in a local-currency account.
The middle rate - the reference point between the two, published daily by the central bank. This is the rate accounting and VAT conversion use.
The selling rate - what the bank charges you when you need to obtain foreign currency. The highest of the three.

The European Central Bank publishes a single reference rate, which sits in the middle by design and carries no buying or selling margin. National central banks publish all three and label the middle one explicitly.

So the gap in the example above is not a mystery. Your books used the middle rate. Your bank used its buying rate. Both were correct for their purpose.

The trap worth avoiding is two parties choosing differently on the same transaction. If you convert at the middle rate and your client’s accountant converts at a selling rate, the two sets of books will disagree about an amount both sides consider settled. Which rate applies belongs in the agreement, not in the discussion afterwards. You will see all of this written as FX, the standard shorthand, on statements and in accounting software.

Three things that look identical on a statement

Less money than expected has three possible causes, and they mean opposite things. Reading them correctly is the whole skill.

An exchange rate difference - the client paid in full, your bank converted. The invoice is closed and nothing is owed.
A bank charge - a transfer or intermediary fee taken on the way. The invoice is closed, and the fee is a cost of doing business.
A short payment - the client simply sent less. The invoice stays open and the remainder is still due.

The first two close the invoice. The third does not. If you invoice in your own currency and receive less, it is almost never a rate difference, so look at the client. If you invoice in a currency your account does not hold, the rate is the first suspect.

Where the bank charges come from, and why a payment from another continent loses a slice at every bank it passes through, is set out in the guide on international payments.

Which rate belongs on the invoice

An invoice may be issued in any currency. What is fixed is the tax: under Article 230 of the EU VAT Directive, the VAT amount has to appear in the national currency of the member state, converted by the mechanism in Article 91.

Article 91 gives you a right worth knowing about. Every member state must accept the rate published by the European Central Bank, and where neither currency is the euro, the conversion runs through the euro rate of each. A member state may additionally allow its own market rate, and outside the EU the national central bank rate normally governs.

The Directive does not require the rate itself to be printed, only the converted VAT figure. Several countries do require it, and a rate shown with its date and its source lets a tax authority check the arithmetic in seconds. That is why a well-made invoice carries all three.

What to give your accountant

Two documents, and they are enough: the invoice, which says what was billed, and the bank statement, which says what moved. From those an accountant books the difference as a gain or a loss under their own rules, in the right period, on the right account.

You do not need to classify it yourself, and you should not try. The same missing 1,000 could be a rate difference, a correspondent bank fee, or a client who rounded down, and only the two documents together settle which.

What Billingz does, and what it leaves alone

Billingz takes exchange rates from official sources: the European Central Bank for the euro and the currencies it publishes, and the national central bank elsewhere. The rate, its date and its source travel with the document, so the number on your invoice can always be traced back.

When you record a payment, Billingz registers what actually arrived and asks one question: is this invoice settled. Your cash position then matches your bank, which is the point of the whole system.

What Billingz does not do is decide what your shortfall was. It does not book exchange rate differences and does not label them, because software that guesses between a rate difference, a fee and a short payment is wrong often enough to make more work than it saves. Billingz keeps the record honest. The accounting stays with the accountant.

Common questions

My client paid in full but less money arrived. Do I chase them?

No. If you invoiced in a currency your account does not hold, your bank converted the payment at its own buying rate, which sits below the official rate. The client paid what was asked. The invoice is settled and the gap is an exchange rate difference. Chasing the client for it is the most common mistake here, and an awkward one.

Buying, selling or middle rate: which one do I use?

The middle rate. A bank quotes three: it buys your foreign currency at the lower rate, sells it to you at the higher one, and the middle rate sits between them as the published reference. Accounting and VAT conversion use the middle rate, which is what central banks label explicitly and what the ECB reference rate effectively is. Your bank will still convert an incoming payment at its buying rate, and the difference between the two is exactly the gap this guide describes.

Which exchange rate am I allowed to use on an invoice?

Under Article 91 of the EU VAT Directive every member state must accept the rate published by the European Central Bank, and conversion between two non-euro currencies runs through the euro rate of each. A member state may also allow its own market rate. Outside the EU the national central bank rate normally applies. The rate you use should be traceable to a named source, whichever you choose.

Does the exchange rate have to be printed on the invoice?

Article 230 requires the VAT amount to appear in the national currency of the member state, using the Article 91 mechanism. The Directive does not require the rate itself to be printed. Several countries do require it in their national rules, and printing the rate with its date and source costs nothing while making the document verifiable, so careful invoices carry all three.

Is an exchange rate difference the same as a bank fee?

No, and they look identical on the statement. A fee is a charge the bank took for the transfer. A rate difference is the effect of converting at the bank's rate instead of the official one. They are booked differently, so an accountant separates them using the invoice and the statement rather than a label applied by software.

Does Billingz calculate the exchange rate difference for me?

No, and that is deliberate. Billingz records what you invoiced and what actually arrived, both accurately, and asks only whether the invoice is settled. The difference between those two figures is an accounting entry, and your accountant derives it from the invoice and the bank statement. Software that guesses whether a gap is a rate difference, a bank fee or a short payment gets it wrong often enough to be worse than useless.

Built for this

Billingz shows every invoice in the currency it was issued in and your position in one currency of your choosing, with the rate, the date and the source recorded against every document.

See how Billingz handles currency

This guide is general information, not tax or accounting advice. References to the EU VAT Directive are to Articles 91 and 230 as in force in September 2026. National rules on which rate applies, and on what must appear on an invoice, vary by country and change over time; Billingz does not warrant that this page reflects the rules on the day you read it. Confirm specifics with a qualified accountant.