In law, set-off or netting is a legal technique applied between persons or businesses with mutual rights and liabilities, replacing gross positions with net positions. It permits the rights to be used to discharge the liabilities where cross claims exist between a plaintiff and a respondent, the result being that the gross claims of mutual debt produce a single net claim. The net claim is known as a net position. In other words, a set-off is the right of a debtor to balance mutual debts with a creditor.

Any balance remaining due either of the parties is still owed, but the mutual debts have been set off. The power of net positions lies in reducing credit exposure, and also offers regulatory capital requirement and settlement advantages, which contribute to market stability.

Whilst netting and set-off are often used interchangeably, a legal distinction is made between netting, which describes the procedure for and outcome of implementing a set-off. By contrast set-off describes the legal bases for producing net positions. Netting describes the form such as novation netting or close-out netting, whilst set-off describes judicially-recognised grounds such as independent set-off or insolvency set-off. Therefore, netting or setting off gross positions involves the use of offsetting positions with the same counter-party to address counter-party credit risk.

The law does not permit counter-parties to use third party debt to set off against an un-related liability. All forms of set-off require mutuality between claim and cross claim. This protects property rights both inside insolvency and out, primarily by ensuring that a non-owner cannot benefit from insolvency.

The primary objective of netting is to reduce systemic risk by lowering the number of claims and cross claims which may arise from multiple transactions between the same parties. This prevents credit risk exposure, and prevents liquidators or other insolvency officers from cherry-picking transactions which may be profitable for the insolvent company.

At least three principal forms of netting may be distinguished in the financial markets. Each is heavily relied upon to manage financial market, specifically credit, risk

Since claims are a major form of property nowadays and since creditors are often also debtors to the same counterparty, the law of set off is of paramount importance in international affairs

— P. Wood, Title Finance, Derivatives, Securitisation, Set off and Netting, (London: Sweet & Maxwell, 1995), 72