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What Is a Settlement Date?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 14 April 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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Settlement dates are the dates when transactions are completed. A settlement date may occur on the same date that the purchase is initiated, or take place several business days later. The date is often used to refer to the time in which payment for goods or services is rendered, and accepted by the provider. Until the settlement date takes place, the transaction is usually considered to be in process.

One example of how the settlement date functions is found in the process of buying and selling stocks and other forms of securities. A buyer may place an order for a specific number of shares, and a seller will respond with an offer. The buyer executes the order, which effectively begins the process of making the trade. In many cases, there is a window of time between the placement of the order and the completion of the transaction. Only once the seller has been paid in full and the buyer has control of the shares can it be said that the settlement date has arrived and the transaction is complete.

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In many markets, the settlement date may be as long as three business days after the order was initially executed. When government options and securities are part of the transaction, there is a good chance that the settlement date will occur on the first business day after the execution of the order commences. A broker can usually provide the investor with an idea of how long it will take to fully settle any order, thus making it easier to arrange and monitor the buying and selling activity.

The concept of a settlement date is also common to the insurance industry. In this application, this usually refers to the date that a payment of benefits is made to the policyholder or to a designated recipient. For example, when a claim is submitted for medical services rendered, a health insurance company will review the claim and determine if it is valid. If so, most companies will schedule a payment to be remitted to the healthcare provider. The date that the payment is actually prepared and forwarded to the provider is the settlement date of record.

Use of a settlement date is important to maintaining accurate records of what has and has not occurred with any type of financial transaction where a payment is rendered. Identification of this date represents when the transaction was settled in full, or completed, and thus makes it much easier to record the activity with the relevant accounting records. Some entities also make use of the date as a means of evaluating their internal processing procedures, to determine if the strategy is allowing for the timely handling of the financial transactions involved.

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