settle for removal on credit report

Resaerch whether or not Restrictive Endorsements are binding in your state before going that route. Also, DO NOT send a personal check.

Restrictive endorsements generally are part of the UCC in regards to negotiable instruments, and more or less governed by contract law.

Your restrictive endorsement could be binding if it meets the prerequistes of being a contract. Namely, that means you would have to show that they received some sort of a benefit (valuable consideration) that they were not already entitled to by endorsing and cashing the check. Legally, the payment of an existing obligation does not create any new consideration for which a new contract can exist; so if all you sent was a check, then they could cash your check and disregard the endorsement without any recourse.

To be clever, you could send a sugar packet or tea bag or something whimsicle. That sugar packet would act as sufficient consideration in creating a new contract, because they would be receiving something "of value" that they were not previously entitled to. That would make your resrictive endorment binding if they were to cash the check and keep the sugar packet.

Thanks for the responses!

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How would you compose a letter attached to a check with a sugar packet in it and make it binding? Would the letter have to mention the sugar packet? I would think the letter you wrote would have to mention the sugar packet, reference your certified check and reference the signed aggrement from the collection agency. Also, exactly word for word what would be written on the back of the check to cross reference everything and how do you prove the letter you wrote goes with the check ?

It is not a separate letter; it is all written on the back of the check -- so that basically when they endorse the check, they have read/agreed to the restrictions on such endorsement. Otherwise if they don't agree, then they should not endorse the check -- and they cannot cash it without endorsing it.
I use restrictive endorsement all the time (not in this sense, though). My company finances cars ... customer goes to a car dealer, signs a financing contract, dealer assigns us the contract, and we write a check to dealer to pay for the car. We always put a restrictive endorsement on our check, which guarantees that the dealer will send us the car title after they cash our check. If they don't send us the title, we could sue the dealer for the entire balance of the loan.
I've never actually tried using a sugar packet as part of a restrictive endorsement --- I had a business law class and my professor, who is an attorney, used that as an example. (Actually his example was a peppercorn).
If I were to try it, my endorsement would go something like this:

I think I might try that on the next debt I settle. Thanks for the info.