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Contra / Set off between debtor and creditor

Hi

Please help am wondering if I have dreamt this!

When you have suppliers that are also customers and you want to 'contra' / 'set off' the suppliers invoice against one we have sent to him as our customer do we have to write to him to advise & formalise this between us - or can I just do it and send him the balance (which we owe him - on this occasion)?

I thought I'd read somewhere of the risks of doing this if our business is subsequently involved in bankruptcy / liquidation etc etc.

Many thanks as always.

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By lenny
11th May 2010 18:14

Contra

The bookkeeping treatment is simple enough, you offset the balances at the month end and set off an amount, this will leave a balance on the account, which can either be setteled or carried forward. if, for example you owed your supplier an amount at the month end this would show on the statement, with the offset amount, which could then be paid.

 

I cannot see how there is any risk as you put it, as it is a perfectly legal business activity, maybe you should change your bookkeeper!

 

Len

 

 

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By SimonP
02nd May 2013 21:30

Actually, it's not at all that "simple".

I have always found contraing to be a right royal pain in the arse what with adjustments to sales and purchase ledgers.

 

So much simpler for all concerned if the two parties just swapped cheques.

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12th May 2010 09:51

Potential risks

Your question jogged the same vague memory in me. You have a point. From the insolvency helpline website on this subject:

"If a business has a customer that is also a supplier, it is not acceptable business practice to withhold payment to them for their goods/services as a way of offsetting an unpaid debt by the other party.

The two contracts are quite separate. For example, the Receiver for an insolvent customer can require a business to repay amounts already offset.

A simple written agreement with common customers/suppliers that debts may be offset, and any excess paid by the party concerned should be considered."

 

 

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By Anonymous
12th May 2010 14:46

contra

Thanks Paul

so pleased I wan't dreaming!

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