How to Record Foreign Currency Transactions in Xero (2026 Guide)

Quick answer

With multicurrency enabled, recording a foreign currency transaction in Xero is one extra decision: pick the currency on the invoice or bill and let Xero fetch the day’s XE.com rate, or type the rate your bank or contract fixes. The document carries both the foreign amount and the home-currency equivalent from then on. Settlement at a different rate books a realised gain or loss automatically, and open foreign balances revalue at each report date as unrealised movements.

Turning it on

Multicurrency lives in the currencies section of organisation settings, on Xero’s higher plan tiers. Add each trading currency once, and it becomes available on invoices, bills, credit notes, quotes, and purchase orders, plus bank accounts denominated in that currency. Set the default currency per foreign contact so their documents arrive pre-set: the US customer defaults to USD invoices, the EU software vendor to EUR bills. From that point, day-to-day entry looks exactly like the workflows in our invoices and supplier bills guides, with one more field on the document.

Rates: automatic, overridden, or fixed

Every foreign document needs a rate, and Xero offers three postures. The default is automatic: XE.com market rates, refreshed hourly, applied silently. The override is per-transaction: click the rate on the document and type the contracted or bank-confirmed rate, which is right whenever a rate was actually agreed. The third is an organisation-set rate for a period, which firms with a group budget rate or treasury policy use so every document in a month carries the same rate. Whichever posture, the rate on the document is what the home-currency ledger records, and consistency matters more than precision: a policy of “XE rate at document date, actual rate at settlement” survives audit; ad hoc mixtures of hand-typed rates do not.

What happens at settlement

Suppose a EUR 10,000 bill was recorded when the rate made it 11,000 in home currency, and by payment day the same euros cost 11,300. Xero records the payment, settles the bill in full in EUR, and posts the 300 difference to realised currency gains and losses without any journal from you. Payments from a foreign currency bank account in the same currency settle with no difference at the bank leg; payments crossing currencies (a USD bill paid from a GBP account) prompt for the actual bank amount so the effective rate is real rather than assumed. Bank fees hiding inside the conversion spread should be split out as fees during reconciliation, not absorbed into the exchange difference.

Open balances and revaluation

Foreign invoices and bills still open at a report date, and foreign currency bank balances, are revalued at the closing rate, with the movement shown as unrealised gains and losses. Xero does this continuously, which surprises people used to booking revaluation journals monthly: the P&L moves with the market even while nothing is settled. For the month-end pack, the foreign currency gains and losses report separates realised from unrealised so reviewers can tell trading outcomes from paper movement. Leave the system accounts Xero uses for these postings alone; journaling into them breaks the automatic calculation.

Common mistakes

• Working around multicurrency by typing hand-converted home-currency invoices; settlement differences then land as mysterious under- or over-payments instead of exchange movements.
• Overriding rates casually, then puzzling over gains and losses that are really typos.
• Matching a foreign settlement by forcing the home-currency amount, instead of entering the bank amount and letting Xero derive the rate.
• Forgetting that the tax line converts too; the return reports home-currency tax at the document’s rate, so a wrong rate misstates the tax return, not just the P&L. See recording GST and VAT in Xero.
• Reconciling a foreign bank account against home-currency mental math; the account reconciles in its own currency, full stop.

Software that helps

• Xero multicurrency with XE.com rates handles the ledger mechanics natively.
• ExpenseFlow captures foreign supplier invoices and receipts, reads the currency and amounts from the document itself, applies the correct tax treatment for your jurisdiction, and posts to Xero after approval, so cross-border documents arrive coded rather than guessed.
• Money transfer services (Wise and similar) cut the spread on settlement; record the amounts they actually deliver, and the fee they disclose, rather than netting both into the rate.

Related guides

The underlying document flows are in recording invoices and supplier bills; the bank side is in bank statements. Definitions worth having to hand: reconciliation and input tax credit.