Receiving a Check Marked Full & Final Payment: Businesses Struggle Because Customers Do Not Pay in Full on Time


A partial payment in full and final settlement is frequently used to settle debts with the written agreement of the creditor, in which case it is legally binding.

When a customer is late in making payment this can affect cash flow and can have consequences for the survival of a small business.

If a cheque arrives when payment is very late it may be tempting to bank it immediately even if it is marked in “Full & Final Settlement” and accompanied with a letter stating something like:

“The enclosed cheque is sent as an offer of Full and Final payment. If you bank this then you are accepting this offer and may not request any further payment.”

The business person obviously has a dilemma, if the cheque is not cashed/banked:

  • the business may get no money if the debtor goes bankrupt;
  • the business may have to wait a very long time to receive another payment;
  • the business may already be out of pocket and into overdraft, in desperate need of cash.

Should the “Full & Final Payment” Cheque be Banked?

If the cheque is cashed in the US then the creditor has agreed to the terms and cannot attempt to obtain further payment (Hudson v Yonkers Fruit Company 258 NY 168); not in the U.K.

In England and Wales, each case is judged on its merits but there is enough case law to support a case for disregarding the written comments, banking the cheque and continuing to pursued the customer for the balance owed. The main reason is that a contract requires “accord”, that is, agreement between both parties.

If the business intends to bank the cheque and continue to seek the balance through the courts they should:

  • bank the cheque as soon as reasonably possible;
  • contact the debtor within a reasonable amount of time.

No time frame has been set by the courts; a week or two might be reasonable but two months is not.

Case Law Regarding Full & Final Cheques

1996 The Commissioners of Inland Revenue v Barbara Jane Fry.

This found that a company is entitled to have a procedure for banking cheques and dealing with any attached correspondence at a later date.

1993 Appeal, Stour Valley Builders v Stuart.

A cheque sent as full & final payment could be considered payment on account and claimant could seek further payment.

1966, DC Builders v Rees.

In this case DC Builders not only banked the cheque for but also issued a receipt which said “in completion of the account”. Even so the court decided that DC Builders was not barred from pursuing the balance of its claim because the “accord” had been obtained by Rees by subjecting DC Builders to economic duress.

Bracken v Billinghurst.

In this case the full and final clause was binding because of the lengthy delay before the creditor informed the debtor that the lower payment was not accepted.

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