Half now or full later: the maths behind a settlement offer

The offer that sounds like a loss

Someone owes you $40,000. They offer $20,000 today to settle. Your instinct says no, because losing half feels wrong. Before you refuse, recognise that instinct measures the gap between the invoice and the offer, not the gap between the offer and what you would actually recover if you fight.

The question is not whether $20,000 equals $40,000. It is whether $20,000 today is better than what remains after you subtract court costs, legal fees, enforcement expenses, the time your business stops earning while you chase the debt, and the risk the debtor cannot pay any judgment you win.

Work out your realistic net recovery

Start with the amount owed. Subtract the filing fee, service costs, lawyer's fees if you instruct one, and any expert reports the case needs. Many claimants recover costs from the other side if they win, but commonly the difference between costs recovered and actual costs paid can be approximately one-third of the total. That gap comes from your result.

Add the time cost. Court dates, document preparation and enforcement action all take you or your staff away from paying work. If winning a $40,000 judgment costs $8,000 in direct expenses and uses three weeks of your time that would otherwise bill $6,000, your net position is $26,000 before you consider whether the judgment can actually be collected.

Source: Official guidance

Check whether they can pay a judgment

A judgment is not cash. If the debtor is insolvent, a court order does not create money that does not exist. Search ASIC's registers for any notice of external administration. Check their trading activity, whether they still operate from the same premises, and whether other creditors are circling. A judgment against an empty company is worthless.

If they own property or significant assets, enforcement may succeed. If their only asset is a struggling business with no surplus, you may spend months pursuing a debt that cannot be recovered. The settlement offer may represent the last point at which any money is available before insolvency formally begins.

Counter in writing with a deadline

If the initial offer is too low but the debtor has capacity to pay more, make a counter-offer in writing. State the amount, the timeframe for acceptance, and that the offer lapses if not accepted by the deadline. Explain briefly why your figure is reasonable, referring to the strength of your claim and their capacity to pay.

Keep the tone commercial. Settlement is not an admission that your invoice was wrong. It is a decision that a certain outcome today is better than an uncertain outcome later. Do not let emotion or principle override the arithmetic. If $30,000 now is better than a long fight for $40,000 you may never collect, say so and move on.

Put any deal into a signed deed

Settlements must be finalised by the parties signing a written agreement which sets out the terms, and must reflect the final agreed position between the parties including any payment or future obligations. A deed of release and settlement records the amount, the payment date, what claims are being released, and that neither party admits liability. Without a signed deed, the agreement may not be enforceable.

The deed should state that once payment clears, you release all claims relating to the invoice and will take no further action. Ensure it is signed by someone with authority to bind the debtor. Today, take your records, work out the real cost and risk of fighting, and compare that figure honestly with the settlement offer. If you need support to evaluate your position or negotiate a fair outcome, contact CRP about dispute resolution coordination with qualified professionals.