No offset: Overview, definition, and example
What is no offset?
No offset refers to a contractual provision that prevents a party from deducting or withholding amounts they believe are owed to them by the other party before fulfilling their own payment obligations. This clause ensures that all payments under the contract are made in full and on time, regardless of any disputes or counterclaims.
For example, a supplier might include a no offset clause in their agreement to ensure that the buyer cannot reduce payments for delivered goods by claiming compensation for alleged defects.
Why is no offset important?
A no offset clause is important because it protects the cash flow and financial stability of the party expecting payment. By requiring payments to be made in full without deductions, it minimizes the risk of delays or financial losses caused by disputes or unilateral actions by the other party.
For businesses, this clause is particularly useful in contracts where one party relies on consistent payments to cover operating costs or deliver services. It also ensures disputes are handled separately, rather than impacting the timely fulfillment of payment obligations.
Understanding no offset through an example
Imagine a software company signs a contract to deliver a custom application to a client for $100,000. The contract includes a no offset clause. If the client believes there are minor issues with the delivered software, they are still obligated to pay the full amount as scheduled. The client can address their concerns through a dispute resolution process, but they cannot deduct any perceived damages from the payment.
In another scenario, a construction contractor completes a phase of a project, and the client claims there were delays caused by the contractor. Even with the delay, the client must make the full payment under the no offset clause and address the delay-related concerns separately.
An example of a no offset clause
Here’s how a no offset clause might appear in a contract:
“All payments due under this Agreement shall be made in full and without any deduction, set-off, counterclaim, or withholding of any kind, unless required by law. Any disputes or claims shall be resolved independently and shall not affect the obligation to make timely payments as specified herein.”
Conclusion
A no offset clause ensures that payments are made in full and on time, separating payment obligations from disputes or counterclaims. For businesses, it helps maintain cash flow, reduces financial risks, and promotes trust between contracting parties. Including this clause in agreements can help avoid payment delays and create clarity in managing disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.