Contract Glossary
Set-Off
Definition
The right to deduct a debt you're owed from a debt you owe to the same party. If your client owes you $10,000 for past work and you owe them $3,000 for supplies, you can set off the amounts and claim the net balance of $7,000.
In Practice
Set-off clauses show up in supply contracts, employment agreements, and ongoing service relationships. They let you resolve mutual debts without separate payments. Be careful with set-off language in contracts — some clauses give one party broad set-off rights while limiting the other party's ability to dispute the deduction.
Common in these contract types
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Frequently asked questions about set-off
In many jurisdictions, yes. Set-off is a common law right in most states — if two parties owe each other money, either can raise set-off as a defense. Having a set-off clause in the contract just makes the process clearer and avoids disputes about when and how it applies.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.