In the U.S., when a debtor submits a check for less than the total amount due and marks it as "payment in full" should the check be accepted or returned to the debtor? Does the creditor lose the right to pursue the balance due if the check is deposited? What’s the best way to handle these kinds of payments?

When a check for payment arrives with a notation on either the front or back of the check that it is being submitted as payment in full, you have two options.

You may return the check to the debtor with documentation that makes it clear that the amount is not acceptable as full payment of the account. However, many receivable managers are reluctant to adopt this policy across the board since a payment in any amount is preferable to receiving no payment response at all. In some cases, this may be the only attempt at payment the debtor intends to make.

Fortunately, another option is available - one that allows acceptance of the payment while preserving the creditor’s right to pursue payment of the remaining balance due. This involves the creditor making his notation on the check before it is deposited.

In preparation for depositing the check make the following notation, before the endorsement, on the back:

This check is deposited under protest, without prejudice, and with preservation of all rights of the payee against the drawer of this check pursuant to UCC § 1-207.

Place your bank endorsement beneath this statement and photocopy both sides of the check. You may then deposit the check.

Please note, by depositing the check without this notation you may lose any right to pursue payment for the balance due.

It is suggested that you notify the debtor that, while the payment has been accepted, it does not represent full payment of the account. A statement showing the balance due may be included.

You also should read the additional information provider by one of our subscribers titled "Restrictive Endorsements on Checks: Proceed With Caution".

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Disclaimer: This information is provided by ABC-Amega Inc. for informational purposes only and is not intended to be legal advice and is not a substitute for competent legal advice on the referenced subject.

ABC-Amega Inc. provides 1st and 3rd party commercial collection services since 1929 and collecting in more than 200 countries worldwide. For further information, contact info@abc-amega.com.