Clause Guide
Set-Off Clause clause: meaning, risks, and what to negotiate
Allows one party to deduct amounts it says are owed from payments otherwise due.
What it means
Set-off rights can affect cash flow by allowing one side to withhold or reduce payment for disputed issues.
Common risks
3 risks identifiedThe other party may withhold payment too easily.
Disputes may be used to delay invoices.
The clause may be one-sided.
What to check before signing
ChecklistCan either party use set-off or only one side?
Does it apply to disputed amounts?
Are there notice requirements before deductions are made?
Negotiation ideas
ActionableProhibit set-off for disputed claims.
Require written notice and detail before deductions.
Keep payment obligations for undisputed amounts intact.
Example clause
Client may not withhold, deduct, or set off any amount from fees due under this Agreement except for undisputed amounts required by law.
Frequently asked questions
1 questionsWhat is set-off in a contract?
It is the right to reduce a payment by amounts one party says are owed by the other.
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