No-offset clause
Language meant to stop the customer from subtracting unrelated amounts from the invoice payment.
Why it matters
Offset rights can reduce collections and create dilution. A no-offset clause requires the account debtor to pay the full invoice amount even if the debtor believes it has claims against the seller. In factoring, this clause is critical because without it, a customer could assert unrelated claims against the seller to reduce or eliminate payment on a funded invoice. The enforceability of no-offset clauses varies by jurisdiction and by the nature of the account debtor claim. Contra accounts and recoupment rights are the most common sources of offset that no-offset clauses are designed to prevent.
How it appears in contracts
No-offset clauses appear in both the factoring agreement and sometimes in the customer purchase orders or service agreements. In a factoring agreement, the seller represents that no account debtor has any right of offset or deduction against funded invoices. Under UCC Section 9-404, account debtors can assert defenses and claims against an assignee that arose from the original contract, which limits how effective no-offset clauses are in practice. Sellers should review customer contracts for unilateral offset rights, deduction language, or set-off provisions that might survive the assignment and create collection problems for the factor.
Related terms
Related reading
Sources
- Uniform Commercial Code Article 9 - Uniform Law Commission. Accessed 2026-05-19.
- International Factoring Association - International Factoring Association. Accessed 2026-05-19.