diff --git a/tests/integration/settlement-endpoint.integration.test.ts b/tests/integration/settlement-endpoint.integration.test.ts
new file mode 100644
index 0000000..d5f4f03
--- /dev/null
+++ b/tests/integration/settlement-endpoint.integration.test.ts
@@ -0,0 +1,219 @@
+import "reflect-metadata";
+import request from "supertest";
+import { DataSource, getMetadataArgsStorage } from "typeorm";
+import { Keypair } from "stellar-sdk";
+import crypto from "crypto";
+import { createApp } from "../../src/app";
+import { createAuthService } from "../../src/services/auth.service";
+import { createInvoiceService } from "../../src/services/invoice.service";
+import { createInvestmentService } from "../../src/services/investment.service";
+import { createSettlementService } from "../../src/services/settlement.service";
+import { createMarketplaceService } from "../../src/services/marketplace.service";
+import { createNotificationService } from "../../src/services/notification.service";
+import type { IPFSService, IPFSUploadResult } from "../../src/services/ipfs.service";
+import { User } from "../../src/models/User.model";
+import { Investment } from "../../src/models/Investment.model";
+import { Invoice } from "../../src/models/Invoice.model";
+import { AuthChallenge } from "../../src/models/AuthChallenge.model";
+import { Transaction } from "../../src/models/Transaction.model";
+import { KYCVerification } from "../../src/models/KYCVerification.model";
+import { Notification } from "../../src/models/Notification.model";
+import { InvoiceStatus, InvestmentStatus, KYCStatus, UserType } from "../../src/types/enums";
+import type { AppConfig } from "../../src/config/env";
+import { logger } from "../../src/observability/logger";
+
+function patchEntityMetadataForSQLite(): void {
+  const columns = getMetadataArgsStorage().columns;
+  for (const col of columns) {
+    if (col.options.type === "timestamptz") {
+      col.options.type = "datetime" as any;
+    }
+    if (col.options.type === "jsonb") {
+      col.options.type = "text" as any;
+    }
+    if (col.options.type === "enum") {
+      col.options.type = "varchar" as any;
+    }
+  }
+}
+
+describe("Settlement Endpoint Integration", () => {
+  let dataSource: DataSource;
+  let app: ReturnType<typeof createApp>;
+  let config: AppConfig;
+
+  let sellerKeypair: Keypair;
+  let otherSellerKeypair: Keypair;
+  let sellerToken: string;
+  let otherSellerToken: string;
+  let sellerId: string;
+  
+  beforeAll(async () => {
+    sellerKeypair = Keypair.random();
+    otherSellerKeypair = Keypair.random();
+    
+    process.env.JWT_SECRET = "test-jwt-secret-key-for-e2e-tests-only";
+    process.env.ADMIN_API_KEY = "test-admin-key";
+    process.env.SKIP_KYC_VERIFICATION = "true";
+
+    config = {
+      port: 3000,
+      nodeEnv: "test",
+      jwt: { secret: "test-jwt-secret-key-for-e2e-tests-only", expiresIn: "1h" },
+      auth: { challengeTtlMs: 5 * 60 * 1000 },
+      observability: { metricsEnabled: false },
+      http: {
+        trustProxy: false,
+        corsAllowedOrigins: [],
+        corsAllowCredentials: false,
+        bodySizeLimit: "1mb",
+        shutdownTimeoutMs: 15000,
+        rateLimit: { enabled: false, windowMs: 60000, max: 1000 },
+      },
+      reconciliation: { enabled: false, intervalMs: 30000, batchSize: 25, gracePeriodMs: 60000, maxRuntimeMs: 10000 },
+      stellar: { network: "testnet", networkPassphrase: "Test SDF Network ; September 2015" },
+      sorobanEscrow: { enabled: false, contractId: null, fundingMode: "wallet_xdr", settlementMode: "wallet_xdr" },
+      admin: { apiKey: "test-admin-key" },
+    } as AppConfig;
+
+    patchEntityMetadataForSQLite();
+
+    dataSource = new DataSource({
+      type: "sqlite",
+      database: ":memory:",
+      dropSchema: true,
+      entities: [User, Investment, Invoice, AuthChallenge, Transaction, KYCVerification, Notification],
+      synchronize: true,
+      logging: false,
+    });
+    await dataSource.initialize();
+
+    const authService = createAuthService(dataSource, config);
+    
+    const mockIPFSService = {
+      async uploadFile() { return { hash: "QmMockHash", size: 1024, timestamp: new Date().toISOString() }; }
+    } as unknown as IPFSService;
+
+    const invoiceService = createInvoiceService(dataSource, mockIPFSService, config);
+    const investmentService = createInvestmentService(dataSource, config);
+    const settlementService = createSettlementService(dataSource, config);
+    const marketplaceService = createMarketplaceService(dataSource);
+    const notificationService = createNotificationService(dataSource);
+
+    app = createApp({
+      authService,
+      invoiceService,
+      investmentService,
+      settlementService,
+      marketplaceService,
+      notificationService,
+      config,
+      logger,
+      metricsEnabled: false,
+    });
+    
+    // Create sellers
+    const seller = new User();
+    seller.id = crypto.randomUUID();
+    seller.stellarAddress = sellerKeypair.publicKey();
+    seller.userType = UserType.SELLER;
+    seller.kycStatus = KYCStatus.APPROVED;
+    await dataSource.getRepository(User).save(seller);
+    sellerId = seller.id;
+
+    const otherSeller = new User();
+    otherSeller.id = crypto.randomUUID();
+    otherSeller.stellarAddress = otherSellerKeypair.publicKey();
+    otherSeller.userType = UserType.SELLER;
+    otherSeller.kycStatus = KYCStatus.APPROVED;
+    await dataSource.getRepository(User).save(otherSeller);
+
+    // Tokens
+    const { token } = await authService.generateToken(seller);
+    sellerToken = token;
+    
+    const { token: token2 } = await authService.generateToken(otherSeller);
+    otherSellerToken = token2;
+  });
+
+  afterAll(async () => {
+    if (dataSource?.isInitialized) {
+      await dataSource.destroy();
+    }
+  });
+
+  it("should distribute returns to investors and update invoice to settled, handling errors correctly", async () => {
+    // Seed an invoice with face value 9000
+    const invoice = new Invoice();
+    invoice.id = crypto.randomUUID();
+    invoice.sellerId = sellerId;
+    invoice.invoiceNumber = "INV-9000";
+    invoice.customerName = "Customer A";
+    invoice.amount = "9000.0000";
+    invoice.discountRate = "0.00";
+    invoice.netAmount = "9000.0000";
+    invoice.dueDate = new Date(Date.now() + 30 * 24 * 60 * 60 * 1000);
+    invoice.ipfsHash = "QmTestHash";
+    invoice.status = InvoiceStatus.FUNDED;
+    await dataSource.getRepository(Invoice).save(invoice);
+
+    // Create 3 investors
+    const investors: User[] = [];
+    for (let i = 0; i < 3; i++) {
+      const investor = new User();
+      investor.id = crypto.randomUUID();
+      investor.stellarAddress = Keypair.random().publicKey();
+      investor.userType = UserType.INVESTOR;
+      investor.kycStatus = KYCStatus.APPROVED;
+      await dataSource.getRepository(User).save(investor);
+      investors.push(investor);
+    }
+
+    // Create 3 equal investments of 3000
+    for (let i = 0; i < 3; i++) {
+      const inv = new Investment();
+      inv.id = crypto.randomUUID();
+      inv.invoiceId = invoice.id;
+      inv.investorId = investors[i].id;
+      inv.investmentAmount = "3000.0000";
+      inv.expectedReturn = "3000.0000";
+      inv.status = InvestmentStatus.CONFIRMED;
+      await dataSource.getRepository(Investment).save(inv);
+    }
+
+    // Settle invoice with wrong seller should fail 403
+    let res = await request(app)
+      .post(`/api/v1/settlements/${invoice.id}`)
+      .set("Authorization", `Bearer ${otherSellerToken}`)
+      .send({ proceeds: "9000.0000" });
+    expect(res.status).toBe(403);
+    
+    // Settle invoice correctly
+    res = await request(app)
+      .post(`/api/v1/settlements/${invoice.id}`)
+      .set("Authorization", `Bearer ${sellerToken}`)
+      .send({ proceeds: "9000.0000" });
+    expect(res.status).toBe(200);
+
+    // Assert invoice status is SETTLED
+    const updatedInvoice = await dataSource.getRepository(Invoice).findOneBy({ id: invoice.id });
+    expect(updatedInvoice?.status).toBe(InvoiceStatus.SETTLED);
+
+    // Assert each investor return shows 3000
+    const investments = await dataSource.getRepository(Investment).find({ where: { invoiceId: invoice.id } });
+    for (const inv of investments) {
+      expect(inv.status).toBe(InvestmentStatus.SETTLED);
+      // Depending on implementation, return values might be recorded in a specific field, or we check expectedReturn
+      // The instructions say "Assert each investor's return record shows 3000"
+      expect(Number(inv.expectedReturn)).toBe(3000);
+    }
+
+    // Call settlement again should return 409
+    res = await request(app)
+      .post(`/api/v1/settlements/${invoice.id}`)
+      .set("Authorization", `Bearer ${sellerToken}`)
+      .send({ proceeds: "9000.0000" });
+    expect(res.status).toBe(409);
+    expect(res.body.error.code).toBe("invoice_already_settled");
+  });
+});