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Cheques received in full and final settlement

View profile for Ben Foley
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This is an issue that recurs time and time again; your customer owes you a sum of money and for any number of reasons they decide they do not want to make payment in full. They then send you a cheque for part of the balance together with a letter stating it is in full and final settlement. 

What do you do?  You don’t want to return the cheque and run the risk of not getting any payment from the debtor again. But at the same time you do not want to write off what could be quite a significant balance. Are you allowed to cash the cheque and still pursue the remainder of the debt?

The short answer is yes. With caveats! 

As soon as you cash the cheque, or ideally even before, write to the debtor and inform them that the cheque has been received, it is accepted as part settlement only and has been cashed accordingly. 

Even better would be to write, stating that the cheque will be accepted as part settlement only and will be cashed in seven days on that basis.

The idea is that the debtor has the opportunity to either object or to stop the cheque. Do not delay though and make sure you can prove that the letter was sent by an appropriate method. A copy by email would be a good idea. 

You should also ensure you do not give the debtor cause to think the part payment was accepted in full and final settlement. For example, if their account has been on stop pending payment of the balance in full and upon part payment you lift the stop, you may be taken to have accepted the amount in satisfaction of the debt. 

Similarly, if you take too long to communicate to the debtor that the cheque is only accepted as part payment, the delay could be treated as causing the debtor to think the payment was accepted in full and final settlement.

If the debt is heavily disputed, rather than the debtor just not wanting to pay for some other reason, you may be better to reject the cheque and pursue the full balance through the courts.

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