Quick answer
An informal settlement is an agreement where a creditor accepts a lump sum, often less than the full debt, in full and final settlement. Creditors agree because a certain payment now beats a slow chase or a small dividend later. The lump sum can be funded with a property-secured or cash-flow loan. Always get the terms in writing before paying, and remember the ATO rarely accepts a discount.
Key points
- Creditors often prefer a certain lump sum now to an uncertain recovery later.
- ASIC's 2026 review put the median DOCA dividend at 11.5 cents in the dollar.
- Get written confirmation that the payment settles the debt in full.
- Funding the lump sum turns several creditors into one manageable loan.
- Median DOCA dividend
- 11.5 cents in the dollar (ASIC 2026)
- Works best with
- Suppliers, collectors, debt buyers
- Rarely works with
- The ATO
- Funding
- Secured $20k – $5m; unsecured $5k – $500k
When a business is under heavy pressure, the conversation usually turns to formal processes: administration, a deed of company arrangement, liquidation. Each of them, one way or another, ends with creditors accepting less than they’re owed. An informal settlement gets to a similar place for creditors — but faster, cheaper and with you still running the business. Funding is what makes the offer real.
Why would a creditor accept less?
Put yourself in the creditor’s shoes. They can:
- keep chasing you, paying staff, collectors or lawyers, with no certainty of success
- issue a statutory demand and try to wind the company up, then wait for a liquidator’s dividend
- accept a lump sum now and close the file
The data on formal outcomes helps explain why the third choice appeals. ASIC’s July 2026 review of voluntary administrations found the median dividend from wholly effectuated deeds of company arrangement was 11.5 cents in the dollar. A creditor weighing a funded offer against that kind of outcome often chooses the money in hand. More on those figures on our alternatives to voluntary administration page.
Which creditors are most open to settling?
| Creditor | Openness to a discount | Notes |
|---|---|---|
| Trade suppliers you won’t use again | Often good | Want certainty and to move on |
| Collection agencies | Often good | May have authority to settle within limits |
| Debt buyers | Often good | May have bought the debt below face value |
| Suppliers you need ongoing | Mixed | You may choose to pay in full to keep supply |
| Secured lenders | Limited | Hold security; usually expect full payout |
| The ATO | Very limited | Expect to pay in full; arrangements are the usual flexibility |
The practical pattern for many rescues: pay the ATO and secured lenders in full, negotiate settlements with unsecured trade creditors and collectors, and fund the total with one loan.
How do I make a credible offer?
- Know the numbers. The debt, any interest and costs, and what you can fund.
- Explain the situation briefly and honestly. The creditor needs a reason to believe the alternative is worse.
- Make a specific offer — an amount and a date.
- Make it conditional on written acceptance in full and final settlement, and on withdrawal of any statutory demand or legal action.
- Line up the funding before you offer, or at least know it’s realistic, so you can pay on the date promised.
If you’d like to know whether a lump sum is fundable before you negotiate, tell us about the creditors. No credit check is involved at that point.
What should the settlement agreement say?
At minimum:
- the creditor’s name and the debt being settled
- the settlement amount and the payment date
- that payment is accepted in full and final settlement
- that any demand, claim or application will be withdrawn and not reissued
- signatures from someone with authority to bind the creditor
Pay only once it’s signed, and pay directly to the creditor’s nominated account. Where a lender is funding the settlement, it will usually pay the creditor at settlement.
An illustrative example
Illustrative only. An Adelaide homewares retailer with two shops owes four suppliers, a collector on an old equipment lease, and the ATO. The owner negotiates written settlements at a discount with three suppliers and the collector, keeps the fourth supplier on full payment because she needs its range, and plans to pay the ATO in full. A second mortgage over her investment unit funds the lot. Six creditors become one lender, and the total borrowed is well under the face value of the debts.
How does funding a settlement differ from consolidation?
A consolidation loan pays every creditor in full. Settlement funding pays some creditors less than the full amount, by agreement. The two are often combined: settle what you can, pay the rest in full, and wrap the whole thing into one facility.
Funding routes include property-secured loans between $20k and $5m, and unsecured or cash-flow options typically from $5,000 to $500,000.
If a collector is involved, see dealing with a debt collector; if a supplier has sent a formal letter, see responding to a letter of demand.
What if a creditor refuses to settle?
Some will. Common reasons are that the debt is secured, the creditor has a policy against discounts, or it doubts you can pay. When that happens:
- Ask what they would accept — sometimes the gap is smaller than it looks.
- Offer certainty instead of a discount, such as full payment on a set date funded by a loan.
- Settle with the others anyway. Reducing the number of creditors still simplifies the picture.
- Check your deadlines. If the refusing creditor has served a statutory demand, the 21 days keep running while you negotiate.
Want to see if your settlements can be funded?
An informal settlement, well negotiated and properly funded, can reset a business at a fraction of the cost of a formal process — and you stay in charge the whole way through.
The enquiry takes about a minute, and there’s no credit check when you first ask. We don’t hand your file to a pile of lenders, so there’s no avalanche of calls. A real person reviews the creditors and your security and phones you. Please be accurate about each debt and any offers already made, so we can tell you quickly what’s fundable.
Frequently asked questions
Will creditors accept less than the full amount?
Often, yes, especially trade suppliers, collection agencies and debt buyers. A prompt, certain payment saves them time and legal costs, and compares well with what they might receive through an insolvency process.
How much should I offer a creditor?
There's no fixed number. Consider what the creditor would likely receive if the company went into administration or liquidation, what it would cost them to chase you, and what you can realistically fund. Start with a reasoned offer, not a random discount.
Will the ATO accept a lump-sum settlement?
The ATO generally expects tax debts to be paid in full, though it may offer payment arrangements. Plan to pay the ATO in full and negotiate settlements with other creditors.
What should a settlement agreement say?
The amount, the date of payment, and that the payment is accepted in full and final settlement of the named debt, with any legal action or statutory demand withdrawn. Get it signed before you pay.
Can I borrow to fund a settlement?
Yes. A settlement is a strong use of funding because you pay less than the face value of the debt. The lender will want to see the signed agreements and how the loan will be repaid.