The Definitive Guide to Making a Full & Final Settlement

Being owed money can create an unfavourable situation for all parties involved. As a creditor, you will be seeking to recover the full debt in as short a time as possible, as it could be causing cash flow issues for the business. A Full and Final settlement is a way for businesses to recover as least some of the money they are owed.

Debtors on the other hand, may well be struggling or unwilling to pay debts for a number of reasons. In their case, a Full and Final Settlement might appear to be the best option.

In this guide, we discuss what businesses should do when a settlement offer is received from a debtor and the implications of accepting or making an offer to settle.   

What is a Full and Final Settlement?

Before we go into detail about debtors making a Full and Final Settlement offer and what that might mean for your business, it’s important to understand what exactly ‘full and final’ means.

Essentially, a Full and Final Settlement gives people the option to pay their creditors a lump sum instead of paying the full remaining balance that is owed. The debt is then regarded as being paid in full.

The sum of money doesn’t always have to come directly from the debtor – sometimes, friends and relatives can put towards the amount to help people pay off the money owed. To break it down, the “Full” part refers to the creditor accepting less than the whole amount to clear the debt, and the “Final” part means that the creditor will not take any further action to recover the final amount owed.    

The difference between cheque and bank transfer

Settlement of the sum due can be proposed to you in many forms but be aware of the form of either a bank transfer or a cheque, and it's incredibly important to understand the difference between these two options and what they can mean for your business. 

Here we have highlighted the differences between these two payment options:

Cheques – if you receive a cheque from the debtor with a note stating that this is their Full and Final Settlement, which is a lower amount than the full balance owed, do not immediately bank this cheque. If you bank the cheque, this means you are accepting the part payment settlement, meaning you cannot pursue the remaining balance of the debt. Ultimately, the banking of the cheque is an acceptance of a lower sum to settle the debt.

If you are offered a cheque for a lesser amount, you should write back to the debtor as soon as you can to explain either one of the following options:

      1. To inform the debtor that their offer of Full and Final Settlement is rejected or accepted

      2. The cheque has been accepted for part payment of the debt however, you will still be pursuing the final balance.


Bank transfers – if you have previously been in communication with the debtor about making a Full and Final Settlement and you then receive partial payment via bank transfer, there is little you can do to avoid it. Here is a suggested course of action you can take should you find yourself in this situation and if you still wish to pursue the remaining balance of the debt:

      1. Inform the debtor that their offer is rejected, and that you will either accept their payment as a partial payment and that you will still be pursuing the remaining balance, or;

      2. Inform the debtor that their offer is rejected and that you will be retuning their payment by a specified date should they ask for it back, and that you will be pursuing the remaining balance.    

A warning for businesses

It can be particularly difficult for businesses if the payments are handled by a cashier or accounts assistant. Oftentimes, they may immediately cash in the cheques or accept the transferred monies without reviewing the accompanying paperwork that details the offer of the Full and Final Settlement.

Ensure that anyone who handles the monetary side of your business is aware of any credit control issues that you are dealing with, thus avoiding being caught up in an unwilling acceptance.   

If your business is the one to be proposing a Full and Final settlement option to a debtor, there is also the risk of it being rejected due to a lack of funds or assets, leaving you in no better position.   

How to avoid the Full and Final Settlement trap

Communication is vital to ensure you are not trapped into accepting a Full and Final Settlement offer from a debtor if you still wish to pursue the entire remaining balance. For example, a debtor may contact you to lure you into accepting their offer. If you receive such communications, you must ensure that you contact them clearly, as soon as possible, detailing your rejection of the offer.  

Remember, if you do receive any payment without agreeing to a Full and Final Settlement offer, you can still accept their offer as partial payment. Just ensure to inform them straight away of your decision, and that the remaining balance is still due.   

We recommend that you have all communications in writing so the debtor cannot try and trip you up in the process. Outline very clearly that the balance is still due, even if they do not directly mention making a Full and Final Settlement offer.      

When should an offer be accepted?

There are many contributing factors that can determine whether an offer should be accepted, and how low of an offer could be considered. For example, if your debtor has been making little to no payments against the debt for a prolonged period, it may be wise to accept a Full and Final Settlement offer, so you are at least still getting some money from the debtor.   

If you receive an offer that is unreasonably low in comparison to the money owed, it is wise not to accept, as you will be faced with a great loss. However, if the debtor provides sufficient information and evidence behind their offer and you deem this reasonable, then you may consider accepting.

Look out for preferential payments

If the debtor in question has a selection of debts that they have proposed a Full and Final Settlement offer for, it’s important to understand the subject of preferential payments.   

Essentially, if the debtor has made Full and Final payments to some of the debts but not all, this is considered as making preferential payments and therefore, you can argue that they have not dealt with the debts fairly.   

If this happens, you have more rights as a business to push to pursue the rest of the amount, even if this means going down different debt recovery routes.

How to propose a Full and Final Settlement as a creditor

If you are in a position where you have a debtor who has been missing their debt repayments for a prolonged period, then you may want to consider making a Full and Final Settlement offer to the debtor. If you do decide to do this, you must ensure that the amount is both reasonable to the debtor, but still provides you with enough money to ensure you are not faced with dramatic losses.

Naturally, this offer may cause negotiations to arise between yourself and the debtor. It is highly likely that the debtor will want to negotiate the amount to be lower. Whilst it may be tempting to accept an offer to get the ordeal over with, you must be smart about how low of an offer you are willing to accept. 

Our team of experienced debt recovery solicitors can handle these complicated negotiations for you, striving to get you the best possible outcome.      

Advice to keep in mind

Now you have a better understanding of what Full and Final Settlements are, here is some advice you should keep in mind:   

Always keep any emails and letters.

For the most part, making a Full and Final Settlement offer goes smoothly. However, you must always be prepared for every outcome. Having all your communications in writing can be used as sufficient evidence in court should the debtor try and take legal action against you.   

Do you need help with making a Full and Final Settlement?

If you need further help and information on debt recovery and making a Full and Final Settlement offer, please contact our team of experts today. We’ll always work closely with you to find the best possible solution.


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