A Customer Is Offsetting Claims Against Your Invoice

The scenario

Your invoice falls due and, instead of paying, the customer tells you they are deducting an amount they say you owe them — a credit note, a backcharge for rework, costs they incurred, or losses they attribute to you. They net it off and remit the balance, or pay nothing at all on the basis that the claims 'cancel out'. You may not even agree the cross-claim exists, let alone at the figure they have chosen.

Set-off is a legitimate concept, but it is also a favourite cover for slow payment. The questions to work through are whether a genuine, quantified cross-claim exists, whether your contract even permits set-off, and how much of your invoice is being held over a claim that may be far smaller — or entirely manufactured.

What's really going on

A set-off can be perfectly proper — if the customer genuinely has a liquidated claim against you, netting it off is reasonable. But it is frequently used to justify withholding much more than any real cross-claim is worth, or to invent a claim that materialises only once your invoice is due. The size and timing are the tells: a claim that appears for the first time on the due date, or that conveniently equals your invoice, deserves scrutiny.

Two things often get overlooked. First, many well-drafted terms of trade exclude set-off, requiring payment 'without set-off or deduction' — in which case the customer's deduction may breach the contract. Second, even where set-off is allowed, it only justifies withholding the amount of the genuine cross-claim, not the whole invoice. So the dispute usually narrows quickly once you test whether the claim is real, quantified, and contractually available.

Your options

• Check your terms. Many terms of trade require payment without set-off or deduction; if so, the deduction may breach the contract.
• Demand particulars. Ask the customer to specify and quantify the cross-claim in writing — vague claims rarely survive that request.
• Ring-fence the excess. Press for immediate payment of any amount beyond the genuine claim.
• Assess the cross-claim. Where it is real, evaluate it on its merits and negotiate that slice.
• Take advice on a contested set-off. If the customer insists and the sum is material, get legal advice.

Recommended approach

Test the set-off before you accept it. Check your terms of trade first — if they require payment 'without set-off or deduction', the customer's deduction may itself be a breach, and saying so plainly can resolve the matter. Then ask for the cross-claim in writing, specified and quantified; vague or newly invented claims often evaporate under that request. Even where a genuine claim exists, it only justifies withholding its own value, so press for immediate payment of everything beyond it and narrow the argument to the real slice.

If the customer insists on a contested set-off and the amount is material, get legal advice on the contract and the claim. For documenting your position and keeping deductions in check, the Academy lesson library is a useful reference, and where a clear balance remains unpaid you can refer the debt with the invoice and correspondence attached.

What to avoid

Do not accept a set-off at face value — ask for it in writing, specified and quantified, because genuine claims can be detailed while invented ones cannot. Avoid letting a small or doubtful cross-claim justify withholding the whole invoice; ring-fence and pursue the excess. Never overlook a 'no set-off' clause in your own terms — it may make the deduction a breach. This is general guidance, not legal advice. Set-off can be legally technical, so for a contested or material claim, obtain legal advice on your contract and position.