In finance, the term settlement can be used both as a verb and as a noun. When used as a verb, it denotes the payment of money owed for goods, securities and services delivered as well as fines and other legal claims. When used as a noun, it denotes an agreement between two or more parties – typically in relation to some form of payment.

When you go into a shop and select goods which you want to purchase, you enter into a commercial contract with the shop’s owner. When you pay for the goods at the till (or at the checkout in the case of online purchases), you are settling the transaction by delivering the payment due for the goods rendered.

When you make a wire transfer from your bank account to another person’s bank account, the transfer is settled when your bank transfers the money to the recipient bank (typically this is done by a clearing house). When a stock broker buys securities on your behalf, the trade is settled when you receive the securities and the seller receives the money promised at the time of the purchase.

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