This clause gives either party the right to deduct money they are owed from money they owe—for example, if the supplier owes you £5,000 in damages but you owe them £8,000 for goods, they could deduct the £5,000 and only demand £3,000. It matters because it can significantly reduce the amount you actually have to pay without going through a court process. In both UK and US law, set-off is a recognized legal right, but contracts can limit or expand it. The danger is that a supplier could claim you owe them money for something disputed and simply deduct it from your next invoice without your agreement, leaving you in a difficult position.
Restrict this clause so that set-off only applies to amounts that are undisputed and have been formally agreed in writing by both parties. Add a requirement that the party claiming set-off must give you 10 days' written notice before deducting anything, and make clear that set-off cannot be used for disputed claims or claims still under negotiation.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause gives either party the right to deduct money they are owed from money they owe—for example, if the supplier owes you £5,000 in damages but you owe them £8,000 for goods, they could deduct the £5,000 and only demand £3,000.
Why should I care about this clause?
It matters because it can significantly reduce the amount you actually have to pay without going through a court process.
What are my options?
In both UK and US law, set-off is a recognized legal right, but contracts can limit or expand it.
How does this affect small businesses?
The danger is that a supplier could claim you owe them money for something disputed and simply deduct it from your next invoice without your agreement, leaving you in a difficult position.