set-off
Definition
A set-off is your legal right to reduce the amount you owe someone by subtracting a debt they owe you first. If two people owe each other money, a set-off lets you cancel out those debts against each other rather than making two separate payments. Courts recognize this as a fair way to settle mutual debts without requiring both parties to pay each other in full.
Example
Your supplier owes you $2,000 for returned defective goods, and you owe them $5,000 for a recent order, so you claim a set-off and send them only $3,000 to settle both debts at once.
Watch Out
Some contracts include a 'no set-off clause' that strips away your right to do this, so always check your agreements before you subtract anything from a payment.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.