Financial settlement is a legal procedure designed to preserve and settle rights between two parties who have a relationship under a legal contract, and it is particularly important in the event of a conflict between the parties to have a paper that is written and signed by both parties to the relationship after the full termination of the legal relationship, so that this paper includes all the rights and entitlements of the second party.
Settlement is a thorny issue, and both parties have many questions about it. Can it be released during the validity of the contract? What if it is signed and the second party does not receive all or part of the rights? Therefore, in this comprehensive article, we explain to you the financial settlement, what conditions must be met in order for it to be valid, when it is invalidated, its different uses with examples, and how to create it, and we also offer you a free settlement form for download.
Settlement Concept
Financial settlement can be simply defined as a document stating the obligation of one party to pay all financial dues to another party after the end of the relationship between them. The settlement is often between conflicting parties, and one of the most common settlements is labor settlement, which takes place between the employer and the worker and is thus considered a receipt bond for the rights of the worker. In this case, the dues are in the form of salary, allowances, leave allowance, end-of-service gratuity, and others.
The signature of the first party on the financial settlement (such as the employer) indicates that he has paid and delivered the rights and dues of the second party (the worker) in full, and the signature of the second party (the worker) indicates that he has received all his rights arising from the contract between them (the employment contract), and the worker is not entitled after receiving his rights and signing a valid final settlement in which all the necessary conditions are met to dispute or dispute his rights in court, but what are the conditions for the settlement?
Conditions for the validity of settlement in Saudi law
There are three main conditions that must be taken into account when establishing a financial settlement in order for it to be fully correct and legal and to achieve its intended purpose, and the following is an explanation of these conditions:
1: End of the relationship
The release of the settlement after the termination of the relationship between the two parties shall be the first condition of its validity, as the release of the settlement during work invalidates all its provisions, as the release must be the last thing that binds the two parties under the contract between them, without taking any actions or initiating any actions after it that indicate the continuity of the legal relationship between the parties.
2: Edited by a written document
The financial settlement must be edited by a written document that is clear in terms and words, and the settlement must contain all rights and entitlements and any deductions. It is preferable to include a phrase that is from the point of view of the second party (the recipient of his rights), such as “I [the second party] acknowledge receipt of all my rights and entitlements represented in:…”.
3: Second Party Signature
It is not enough to write the rights and receivables in the settlement, even if the second party writes them personally and in his own handwriting, but he must sign them and acknowledge that signature to become a legal settlement.
When is the settlement invalid?
The settlement shall be void in Saudi law if it does not meet one of the above conditions, especially if the settlement was released before the end of the relationship, that is, during the validity of the contract between the two parties, as it must be released after the end of the relationship in full until it is ensured that all rights are calculated correctly and include the rights that the second party is entitled to after the end of the relationship only, such as the end of service gratuity for the worker and others.
Signature of settlement before receiving rights
The signature of the second party on the financial settlement is an acknowledgment that he has received all his rights, and if the settlement is valid and legal so that it meets all the necessary conditions, the worker is not entitled to dispute his rights after signing it. But if he signs it and then does not receive all or part of his rights, or if the settlement contains accounting defects, the second party can argue to prove this and collect his rights from the first party, and these cases can be summarized in the following points:
- If the settlement is signed and then the first party refuses to hand over the rights to the second party, the settlement itself may be valid and legal, but if the second party does not receive his rights, it can seek the assistance of a lawyer to prove the opposite of the settlement until it fulfills his right against the first party.
2: After signing the settlement, if it is found that it does not include all the rights of the second party, the second party has the right in this case to insist on correcting this error in the settlement and calculate his rights fully through the judicial department.
- If the settlement includes accounting defects, where these accounting errors are considered a management defect, the first party is not relieved of the rights of the second party.
Uses of financial settlement with examples
The uses of settlement are not limited to the employment contract between the company and the employee; there are many other cases in which a final settlement is released, and the formula of the settlement varies according to its parties and the rights written in it, and some of them can be mentioned with examples in the following:
Financial settlement between the lessor and the lessee
The financial settlement here indicates the payment of the full amount of rent agreed upon between the lessor and the lessee, and an example of its formula is the following:
I, the undersigned [name of the lessor], have ID number ______. I acknowledge that on __/__/_______ I have received from [lessee name] an ID number ______ all my financial dues related to the rental of the property located in [the address of the rented property] and the amount of [the agreed amount]. Accordingly, I forfeit my right to claim any other financial dues related to the rent.
Lessor’s signature: ____________
Lessee’s signature: ____________
Signature of witnesses: ____________
Financial settlement of a debt between a creditor and a debtor
The settlement here indicates the payment of the full amount of the debt from the debtor to the creditor, and an example of its formula is the following:
I, the undersigned [name of the creditor], have ID number ______. I acknowledge that on __/__/_______, I received from [name of the debtor] an ID number ______. The amount of the debt he had in full and the amount of [debt amount] Saudi riyals only.
Accordingly, I forfeit my right to claim any financial dues related to this debt.
Creditor’s signature: ____________
Debtor’s signature: ____________
Signature of witnesses: ____________
Financial settlement between two companies
The financial settlement here indicates the payment of all obligations between the two companies and the termination of the contract between them, and an example of its formula is the following:
In accordance with this settlement, we [the name of the first company] with a commercial register number [number] agree with [the name of the second company] with a commercial register number [number] to settle all financial obligations between us definitively. After we have paid an amount of [agreed amount] Saudi Riyal only.
Accordingly, the right of the parties to claim or hold the other party accountable for any other rights and entitlements is forfeited.
Signature of the first company: ____________
Signature of the second company: ____________
Signature of witnesses: ____________
Free Settlement Model for Download
We offer you a financial settlement form that you can download and modify as you wish. Click on the following download link: Financial settlement model.
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Conclusion
After we have explained the concept of financial settlement at length and clarified the conditions of its validity and how to release it with all the necessary items in it, it can be said that financial settlements are one of the most important legal documents, especially for owners of companies and businesses, as they need to prove the delivery of all the rights of their employees at the end of the employment contract for any reason. It is not only financial settlement, but there are many administrative and accounting documents and processes that company owners of all sizes should understand and apply when needed to ensure continued legal compliance.
Therefore, Qoyod seeks to reduce a lot of the burden on business owners and companies, as it provides them with professional services that accomplish a large part of their administrative and accounting work, such as services for employee salaries and professional financial reports that it prepares automatically. And many other accounting services, which you can benefit from by subscribing to the Qoyod accounting system through your device connected to the Internet and without downloading, do not hesitate to subscribe and enjoy a fully free trial period for 14 days.
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