Paid in Full

A customer who owes you money sends you a check for part of the amount due with the words like “paid in full” written on the check. The big question: what should you do with it? Do you have to accept? Can you accept the partial payment and try to collect the rest?

Technically, if the amount owed is undisputed, then the words “paid in full” won’t prevent you from cashing that check and pursuing the remaining balance. But if the amount is disputed, then accepting a check marked “paid in full” completely discharges the entire debt. The distinction sounds simple, but it’s difficult to apply in reality.

If you’re willing to accept the amount on the check as full payment, you can cash the check either way. That might be best if the debt is old or unlikely to be paid entirely. But if you aren’t willing to accept a lesser amount, it’s a good idea to return any “paid in full” checks with a letter explaining why you’ve returned it and inviting the debtor to send another check without the “paid in full” language. You don’t have to accept a check marked “paid in full” if it’s for an amount less than what you’re owed.

Perhaps the best thing to do is develop a policy regarding “paid in full” checks. Work with a collections attorney to decide how to track the checks, when you’ll accept them (for example, if the debt is over 5 years old or under $1,000), and how you’ll handle rejected ones. You can also address how you’ll negotiate settlements or payment plans.

Some debtors use “paid in full” checks to trick you. Others may honestly think they’ve paid the full amount. Knowing your options and being prepared can help you maximize your payment.

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