Law Institute of Victoria Accredited Specialist

For expert legal advice, give us a call on
03 9646 0344



grey underscore

Receiving part payments from debtors

“Please find our cheque for your invoice less a 20% discount due to the problems we suffered when you provided your goods...”

Issues to consider:

  • Have you had such an experience and what action did you, or should you adopt?

  • Do you accept the payment and forego the balance?

  • Do you return the cheque and insist on payment of the whole amount?

  • Do you accept the payment, and try to recover the balance?

By accepting a cheque for less than the full amount due, do you lose your claim for the balance? Generally, if a creditor accepts the reduced payment in settlement, it foregoes the balance especially if there is evidence both parties intended and agreed to the arrangement. There is no hard, fast rule on what is “evidence”, and cases often depend on individual circumstances. As a result, there is a risk that by accepting a lesser payment, you may forego the balance.

Crucial factors to take into account are of course, the amount involved and the strength of arguments about the balance.

The “safest” path is not to bank the cheque. However, most people want to bank the cheque quickly either because they want cash, fear the debtor cannot pay in the near future or that arguing will involve further delay. If one decides to bank the cheque or keep the payment, it is critical to write immediately to the debtor, stating you do not accept it in full settlement and require payment of the balance. In this way, the creditor has a good argument that there is no agreement to accept the reduced payment in full settlement.

A disadvantage of informing the debtor immediately is that, it may stop payment on the cheque. Therefore, some creditors delay informing the debtor about their intention to accept it in part payment until clearance of the cheque or payment received in their account. This is, however, a little riskier. Much depends on the wording of the letter accompanying the cheque, however, and this can be a trap for the unwary.

Creditors can anticipate this scenario by including relevant provisions in their terms of business.

Traditionally, accepting the reduced payment without protest and not pursuing the balance for some time is evidence of an agreement to accept the lower amount in full settlement.

Share by: