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.