Waiver of set-off: Overview, definition, and example
What is waiver of set-off?
A waiver of set-off is a contract clause where one party agrees not to reduce or withhold payments they owe by claiming the other side owes them money. In other words, they promise to pay in full, even if they believe they’re owed something in return.
In plain terms, it’s saying: “I’ll pay what I owe you, no matter what. If I think you owe me something, I’ll deal with that separately.”
Why is waiver of set-off important?
Without a waiver of set-off, a party might try to deduct money they think they're owed from what they’re supposed to pay—leading to disputes, cash flow issues, or payment delays. A waiver of set-off helps protect the expected payments under a contract and ensures that obligations are kept separate.
This clause is common in loan agreements, supplier contracts, and licensing deals—especially when the receiving party wants certainty that payments will come in full and on time.
For example, if your business is owed $10,000 under a contract, you don’t want the other side holding back part of that just because they have a complaint—they should still pay, and handle any dispute separately.
Understanding waiver of set-off through an example
Let’s say you provide monthly IT services to a client for $5,000. One month, the client believes you were late in responding to an issue and says you owe them a $1,000 credit. If there’s no waiver of set-off, they might just subtract that amount and only pay you $4,000.
But if your contract includes a waiver of set-off, they’re required to pay the full $5,000 and then raise the $1,000 issue through a separate process or claim. This protects your business from surprise deductions and keeps your cash flow steady.
An example of a waiver of set-off clause
Here’s how a waiver of set-off clause might appear in a contract:
“The Client agrees to pay all amounts due under this Agreement without set-off, counterclaim, deduction, or withholding of any kind, except as may be required by law. Any disputes regarding performance or damages shall be addressed separately and shall not affect the Client’s payment obligations.”
Conclusion
A waiver of set-off keeps payments clean and predictable by preventing one party from reducing what they owe based on unrelated disputes. It helps ensure fair dealing and protects your revenue stream—especially in long-term service or supply agreements.
If you’re offering products, services, or financing, including a waiver of set-off clause is a smart way to make sure you get paid in full and handle disputes the right way—through discussion or legal channels, not through withheld payments.
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.