Full And Final Settlement Letter

The letter

This general template closes a smaller debt on a full and final basis with a short letter. Replace each [placeholder].

FULL AND FINAL SETTLEMENT

[Your business letterhead]
[Date]

[Customer name]
[Address]

Dear [name]

Account [account/invoice numbers] — full and final settlement

We refer to the outstanding balance of [$balance] on the above
account.

To resolve this matter, we are prepared to accept [$settlement] in
full and final settlement of the account, on the following basis:

  1. You pay [$settlement] by [date] to [BSB/account],
     reference [reference].
  2. On receipt of that payment in cleared funds, we accept it in
     full and final settlement and will not pursue you for the
     balance of this account.
  3. If the payment is not made by [date], this offer lapses and the
     full balance of [$balance] remains owing.

Please confirm your acceptance by [date].

Yours sincerely
[Name, position]

Keep finality conditional

The whole point of this letter is to draw a line under a smaller account without the cost of a formal agreement. Two things keep it safe. First, the discharge is conditional: you only accept the reduced sum in full and final settlement once the money actually arrives in cleared funds, so a customer cannot bank the discount and then fail to pay. Second, the offer lapses on the date if unpaid, which stops it hanging over you indefinitely. For larger or more contentious debts, a full settlement agreement with proper release wording is the better vehicle.

How to use it

Use it for modest balances where a clean, quick close is worth a small discount and the relationship is straightforward. State the figure, the date and the cleared-funds condition plainly, and keep the customer's acceptance and the proof of payment together. Where the amount is significant or there is a genuine dispute, step up to the settlement agreement template instead. And if you would rather pursue the full amount than discount it, you can always refer the debt.

Not legal advice

This is a general template and general information only — not legal advice. A full and final settlement gives up part of what you are owed, so the wording matters. Have it reviewed by a lawyer before you rely on it, particularly for anything other than a small, straightforward account.