How to Make and Receive Reduced Lump Sum Offers

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Hi, my name is Adam Stewart, Debt Collection Expert and owner of Debt Recoveries Australia and ADC Legal.

Firstly, let me say payment in full must be your first priority. This is the object of the game: to get the full payment from the debtor, including any interest and penalty charges.

If this cannot be done, the next step is a reduced lump sum or a settlement offer. The truth is that anyone can make a settlement offer at any point. The consumer does not need a representative or debt settlement company in order to make a deal. The creditor can make a settlement offer without waiving their rights to balance in full. However, there are certain things you should do to protect yourself and convince both sides to accept a reasonable offer.

A reduced lump sum, or settlement, is a sum accepted, less than payment in full offered that would satisfy the creditor and resolve an outstanding debt. In order to have payment on account be considered settlement, both the debtor and the creditor need to take certain steps to protect themselves.

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    Creditor/Collector’s Point of View

    Obviously, when a consumer makes a settlement offer, there should be incentive for the creditor to accept it.

    If you have initiated a settlement offer, ensure you do so in such a way that does not harm your company’s position to expect payment in full. If a consumer is offered a settlement, or your company has a reputation for accepting settlements on a regular basis, many consumers may expect further offers down the road.

    Please consider the following on a settlement:

    Is it a lump sum? A settlement broken down into payments is no better than a payment schedule on a balance in full. If it is a lump sum, is the offer timely? The whole point of an offer is quick and painless resolution – a settlement six months from now defeats that purpose.

    Is the original amount owed significant? No one wants to bother with a settlement on a balance anything lower than $500.00. However, an offer on a balance of thousands of dollars may bear consideration.

    Have you taken into consideration the consumer’s means? If the consumer is seeking a consolidation loan or refinancing on mortgage equity, and they can establish to you the available funds are limited, a settlement is reasonable. On the other hand, if the consumer is doing well and their credit rating is impeccable, perhaps a settlement should be rejected in favour of payment in full or the enforceable consequences of non-payment.

    Will accepting this settlement create consumer goodwill, retaining them for further business, or create a positive impact on your company’s reputation?

    Certainly, any settlement offer on a significant balance should be given consideration, and a professional response should be offered to the consumer, whether the settlement is accepted or not.

    On the Consumer Side of a Settlement

    Whether you are offering a settlement to a creditor, a collection agency, or a lawyer, your offer should be one that is reasonable – the philosophy behind a settlement is a quick and painless method of resolution on an account, to save unnecessary grief and aggravation on a debt.

    The best offer you can make is a single, lump sum payment in a timely fashion, which is a percentage of the debt owed.

    There is little harm in making a settlement offer – the worst that can happen is the creditor will say no. It displays your intent to work with the creditor, and is a far better alternative to burying your head in the sand and hoping the debt will go away, or worse yet, inflate with interest or affect you through the credit bureau or pending legal action.

    When you make your offer, ensure it is going to someone with the authority to give it meaningful consideration – this can be the collection agent assigned to the file, the credit manager of the company, or perhaps even the principal of the company owed funds. Understand when dealing with a collection agency or lawyer, they may not have the unilateral authority to accept a settlement – they may need to seek permission from the client. When you make an offer, ensure it is legitimate, and you have the funds available to meet this offer if it is accepted. If you have settlement accepted, and you fail to follow through with payment, your offer will expire and the client will understandably demand payment in full, and consider further settlement offers as disingenuous.

    There is nothing stopping you from making a settlement offer without representation. Most creditors will respond favourably if you are trying to give them money!


    Settlement can be a useful negotiation tool for both parties involved in a debt. However, both parties should deal with each other honestly and fairly. Good luck!

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    Adam Stewart - Debt Collection Expert
    About the Author

    In 2002, Adam Stewart established Debt Recoveries Australia Pty Ltd, a debt collection agency specialising in the insurance claims industry.

    Adam has worked in the fields of motor vehicle insurance and debt recovery for over 12 years, working with some of the largest insurance and debt recovery companies in Australia. Read more

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