If you are a creditor and you are offered part payment only of money owed by a debtor, you should take caution in accepting particularly if the sum is offered “in full and final settlement”.

If a debtor makes a written or verbal statement saying that they are making payment to you in “full and final settlement” of the debt, or words to that effect, and that payment is less than the debt owed, care needs to be taken as you could inadvertently lose your legal right to pursue the balance of the debt.

The right to claim the balance of the debt can also be lost by delay, so you must act quickly to protect your position.


If part payment is received by cheque accompanied by a note offering it “in full and final settlement” and you wish to pursue the balance of the debt, do not immediately bank the cheque as this may amount to acceptance of part payment in settlement of the full debt. The best course of action is to write to the debtor to inform them that:

  1. Their offer of “full and final settlement” is rejected
  2. The cheque is accepted in part payment of the debt, but the outstanding balance will be pursued.

Be careful – if the accompanying note says “it is tendered in full and final settlement and if not accepted as such, must be returned” [or words to that effect]; you do not have the option of banking it and pursuing the balance. You either accept the cheque and write off the rest of the debt or you return the cheque.

Bank transfers

If part payment is received by bank transfer but there has previously been some communication from the debtor saying it will be paid “in full and final settlement”, there is little you can do to avoid receiving it. A suggested course of action if you wish to pursue the balance of the debt is to write to the debtor to inform them that:

  1. Their offer of “full and final settlement” is rejected; and
  2. Either:
  • You are accepting their payment as part payment and pursuing the balance; or
  • You will return their payment by a specified date if they ask for it, failing which, you will be accepting it as a part payment and pursing the balance.

AcceptanceAvoiding getting caught by this scenario is simple if it is paid to you as an individual. It can get trickier if you have a small business and payments/information about payments are dealt with by a cashier/accounts clerk. Make sure they don’t simply pay a cheque in and ignore the accompanying paperwork or are not up to speed with any credit control issues you have been dealing with.