ALP: My company just received a check marked "PAYMENT IN FULL" from a customer.

February 2004

Bona fide disputes over money happen every day. Fortunately, the law provides a simple way to try to settle these disputes – send a "payment in full" check. A payment in full check is a check for less than the full amount claimed by the creditor but offered in full payment of the debt. If the amount offered is reasonable, the creditor has a tough decision: Will I accept the $15,000 offered and give up the other $3,000 that I think is due, or refuse it and hope I can get $18,000 later?

If your company receives a payment in full check, you generally have two options: either cash the check and accept the settlement offer, or send the check back. You can’t just scratch off or ignore the full payment language, cash the check, and then claim partial payment. But what if your company "accidentally" cashed the check? In that case, you can usually repay the amount of the check within 90 days and undo the settlement. But beware, there are exceptions to this "90-day repayment" rule.

Payment in full checks can be an effective legal tool, but remember (1) there has to be a bona fide dispute, and (2) the check (or a letter sent with the check) must conspicuously state that it is offered as full payment of the disputed debt.