Value Date

What is Value Date?

Value date refers to the date when a transaction takes place or when the value of assets or money becomes effective. it is also used to determine the present value of a product with a fluctuating price.

How are Value Dates Used in Business?

The use and significance of value dates differ slightly in various scenarios, such as in banking, trading, and accounting.

Value Dates in Banking

In banking, value dates refer to the date when account holders can use funds from deposited checks that already passed through the bank’s clearing cycle. To better understand the concept, we first must understand how the clearing cycle works.

When an individual (payee) first deposits a check at their bank, the bank will credit the payee’s account with the amount indicated on the check.

However, the money’s not actually been received by the bank since they still need to collect the funds from the bank of the other party (assuming that the parties involved use two separate financial institutions). The bank faces a risk of incurring a negative cash flow if the payee immediately uses the cash from the check.

To avoid such a situation, the bank will make an estimate of the day it expects to receive the funds from the other bank, called the value date. The payee can only use the funds after the value date; prior to the value date, the funds are held in the payee’s account.

The value date is a few days later than the book date, but for larger bank customers, it may be possible to negotiate for an earlier time before the value date is reached.

Value Dates in Trading

In foreign exchange markets, value date refers to the date when a trade is expected to be settled.

For spot transactions, or those involving the sale or purchase of currency for another, the value date is usually two business days after the date upon which the transaction and exchange rates were agreed to.

The value date is the date that the two currencies are traded and not the date of the agreement. Of course, the two business days do not include Saturdays, Sundays, or public (bank) holidays in either of the two countries of the currencies involved.

For FX forward transactions, value date refers to the date agreed upon by both parties for the delivery of funds, but unlike spot transactions, this date can occur any time after the contract is signed.

In bond markets, value date is one of the key pieces of information used to calculate accrued interest on a bond. Accrued interest calculation takes three important dates into account – the trade date, settlement date, and value date.

The trade date refers to the date when a transaction is made. The settlement date is the date when the transaction is completed. The value date is the same as the settlement date.

While the settlement date can only fall on a business day, the value date (in the case of calculating accrued interest) can fall on any date of the month.

Value Dates in Accounting

In accounting, value date refers to the date when an account becomes effective. It is the date based on which assets become available to the account owner when credit entries cease to become available to the account owner in cases of debit entries.

It is the legally binding date of an operational flow transaction and defines the start date for calculating accrual and deferral interest and other items. The value date needs to be kept distinct from the posting date.

More Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

• Settlement Period
• Accounting Transactions
• Banking Fundamentals
• Forecasting Cash Flow
• See all valuation resources