Setoff in an ABC: When You Owe Them Too

You hold their unpaid invoices; they hold your deposit — or you owe them for goods received. Mutual debts net against each other, and asserting setoff correctly can convert a pennies claim into dollar-for-dollar recovery.

What the Law Says

Setoff rights permit netting mutual pre-assignment obligations: the creditor applies what it owes the assignor against what the assignor owes it, claiming or paying only the difference. The right survives the assignment as to pre-assignment mutuality, asserted to the assignee with the accounting that proves both sides.

How to Navigate It, Step by Step

1. Map the mutuality: everything you owe them and everything they owe you, as of the assignment date.
2. Assert the setoff in writing to the assignee with both ledgers attached — before paying anything.
3. Net properly: post-assignment obligations do not offset pre-assignment claims.
4. Expect scrutiny: assignees test mutuality and timing; clean books carry the point.
5. File the claim for any remaining balance after the net.

Common Questions

We owe them 30,000 for their last shipment and they owe us 50,000. What do we pay?

Nothing — assert the setoff and file a 20,000 claim for the difference; paying the 30,000 first would donate it to the estate.

The assignee demands we pay our payable in full and file a claim like everyone else. Must we?

Not where true mutuality exists — setoff is your right, not the estate’s favor; assert it and let the documentation carry the dispute.