What is Account Settlement?

Settling an account is laying all outstanding business on an account to rest. Account settlement is an idea that can take a few forms.

Settlement is when acceptable “consideration” (compensation or pay) has been provided and both parties agree that the matter is settled, resolved, and no further debts or obligations exist for that item of business. Many people have heard the term “settlement” with regards to legal matters, in which the defendant pays off the plaintiff before an actual trial and usually can avoid officially admitting guilt.

Usually the settlement amount is less than the plaintiff originally sought in damages, and this is also congruent with the idiom “settling for less” than you could have gotten. Credit card companies and lenders are often willing to settle with debtors for less than the company is owed. This is a common application of the term “account settlement” today.

The credit card company’s alternative is to hire a debt settlement company, who will take a significant fee off of whatever portion of the debt they are able to reclaim on behalf of the credit card company. Settlement doesn’t have to have a negative connotation, however. Settling accounts is another word for balancing or reconciling the books for a company’s financial accounts.

In macroeconomics, a settlement account is a ledger account that tracks the flow of gold, foreign exchange reserves, bank deposits, and special drawing rights (SDRs) between central banks.

What is a Settlement Date?
Can I settle my debts for less than I owe?