Offsetting accounts receivable and accounts payable involves using matching receivables and payables to reduce payment obligations between parties. After offsetting, the party with the greater obligation only pays the difference.
In accounting practice, the terms "offsetting accounts payable," "offsetting accounts payable," and "repayment offsetting" are often used interchangeably. However, "offsetting documents" in accounting software is simply the process of allocating payment amounts to individual invoices. Accountants need to correctly identify the transaction before creating the documentation and recording it in the ledger.
What is debt offsetting?
Offsetting debts This is a common term used when businesses offset accounts receivable and accounts payable against each other. Legally, this transaction is similar to offsetting obligations; in accounting, it simultaneously reduces both accounts receivable and accounts payable within the limits confirmed by the parties.
Offsetting debts in payment transactions
Offsetting typically occurs when two businesses both buy and sell goods or services to each other. If the obligations qualify for offsetting, the two parties determine the amount to be offset and only pay the difference.
I have to pay 120 million VND.
I have to pay 80 million VND.
The two parties offset 80 million VND. Company A still owes Company B 40 million VND.
What is offsetting vouchers in accounting software?
Document offsetting is the process of combining or allocating receipts, payment vouchers, credit notes, debit notes, or payment documents to individual invoices and detailed accounts payable. This operation helps determine paid invoices, remaining balances, and amounts awaiting allocation.
Distinguish between offsetting, offsetting, and reconciling accounts payable.
These terms can only be used interchangeably when they describe the same nature of the transaction. Accountants need to determine whether the transaction reduces the payment obligation or is merely confirming figures or allocating documents.
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| Terminology | Nature | Impact on accounts receivable | Basis to be checked |
|---|---|---|---|
| Offsetting debts | This is a common business term used to describe a reduction in accounts receivable and accounts payable. | Reducing obligations if it is essentially a matter of offsetting debts. | The nature of the transaction, the contract, the reconciliation of data, and confirmations from the parties. |
| Offsetting/setting debts | Use reciprocal obligations to settle payments between parties and determine the difference. | Reduce accounts receivable and accounts payable within the limits of offsetting. | Terms and conditions of the obligation, payment documentation, and corresponding tax requirements. |
| Offsetting documents | Allocate payment vouchers to invoices or accounts payable in the software. | Update payment status; do not create your own clearing agreement. | Receipts, disbursements, bank statements, invoices, and object codes in the system. |
| Reconciliation of debts | Compare and confirm the balances, including increases and decreases, between the parties. | Do not reduce your obligations. | Detailed ledgers, invoices, delivery and receipt documents, payment records, and data confirmations. |
| Deduction | Reduce the amount payable or due under tax, contractual, or specific regulations. | It depends on the mechanism applied. | Based on tax regulations, contracts, or related policies; not to be used as a substitute for offsetting liabilities. |
Conditions for offsetting debts
Businesses should only record offsetting when the rights and obligations of each party, the amount due, the amount to be offset, and the difference have been determined. Conditions for termination of obligations under civil law and conditions of documentation for tax purposes need to be checked separately.
Conditions regarding civil obligations
Article 378 of the 2015 Civil Code stipulates that when parties have obligations of the same type to each other and these obligations are due at the same time, the obligations may be offset; if the values are not equivalent, the parties shall pay the difference.
Not all concurrent debts are automatically offset. Accountants need to check whether a debt is disputed, not yet due, or falls under the category of non-offsetting debts before writing a reduction in the balance.
Clearing and settlement records between the two parties.
To prove the offsetting payment method in tax filings, businesses need to demonstrate this method in the contract and provide supporting documents, including confirmation between the two parties regarding the offset amount.
The confirmation document can be organized into an integrated record or separated into a reconciliation record and a clearing record. The content should clearly indicate the relevant documents, the amount of debt before clearing, the amount to be cleared, and the remaining balance.
Example of a tripartite debt offsetting
A three-party transaction requires an agreement that clearly outlines the chain of obligations. The example below is intended only to illustrate how to determine the amount to be offset, and is not a sample entry to be used for all businesses.
100 million VND
70 million VND
50 million VND
After offsetting, A still owes B 50 million VND; B still owes C 20 million VND; C's 50 million VND obligation to A is settled. All three parties must clearly confirm this result in the records.
What should the offsetting clause in a contract include?
Debt offsetting procedures and documentation
A safe process should begin with the original transaction, reconciling data, determining offsetting conditions, and only then creating confirmations and recording entries. It's not advisable to record entries first and then search for supporting documents to legitimize the balance.
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Review of original transactions
Review contracts, invoices, delivery and acceptance documents, payment vouchers, and accounts payable/receivable.
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Compare the detailed ledger.
Compare the beginning balance, increases and decreases, amounts paid, and amounts receivable or payable.
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Determine the eligible amount for offsetting.
Exclude any amounts that are in dispute, not yet due, or for which there is insufficient basis for recognition.
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Review contracts and authority.
Determine the method of offsetting, the signatories, and the necessary supporting documents before proceeding.
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Prepare verification and confirmation documents.
Clearly list the documents, the amounts owed, the amounts to be offset, the difference, and the payment deadline.
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Accounting, payment, and record keeping.
Record the transaction correctly, settle the difference using the appropriate method, and update the system.
Bilateral offsetting records
- The contract or addendum specifies the method of payment.
- Invoices and supporting documents for each transaction.
- Documents for verification and confirmation of the offsetting amount.
- Payment voucher for the difference.
Three-party clearing record
- The agreement outlines the contractual relationship between the three parties.
- Three-party clearing record and figures for each relationship.
- Invoices, original documents, and remaining supporting documents.
- Accounting documents at each business.
Borrow, lend, or pay on behalf of
- A suitable contract or authorization document.
- The money transfer documents accurately reflect the nature of the transaction.
- Documents proving the paying party's identity.
- Confirm remaining obligations after payment.
Businesses can refer to debt reconciliation form and debt offset form. When using templates, adjustments should be made to reflect actual transactions instead of maintaining the general content.
How to account for offsetting accounts receivable and accounts payable.
When the same entity is both a customer and a supplier, the typical journal entry for the confirmed offset of accounts payable is: Debit Account 331 / Credit Account 131. The entry is only made after the original transaction has been recorded and the clearing record is complete.
Conditions before recording an accounting entry
Businesses must separately record purchase transactions, sales transactions, taxes, and liabilities arising from these transactions based on original documents. Offsetting entries do not replace the entries recording revenue, purchases, expenses, or taxes for the original transactions.
Reduce accounts payable to suppliers.
Reduce accounts receivable from customers.
Example of offsetting accounts payable between two parties.
Company A is obligated to pay Company B 120 million VND and simultaneously collect 80 million VND from Company B. Both parties confirm the offsetting of 80 million VND; Company A will pay the remaining 40 million VND via bank transfer.
Debit account 331: 80 million VND
Account 131 has 80 million VND.
Debit account 331: 40 million VND
Account 112 has 40 million VND.
Accounting for tripartite transactions
Three-party transactions do not have a single accounting entry for all cases. Accountants need to create a diagram outlining the rights and obligations of each business, identifying which amounts are offset, which are paid on behalf of others, and which documents serve as the basis for reducing the liabilities of each party.
Tax conditions when settling accounts payable by offsetting debts.
Payment by offsetting can meet the requirements for cashless payment when the business has sufficient documentation as stipulated. The key control points are the contract, data confirmation documents, tripartite records if any, and payment vouchers for the difference.
Conditions for deducting input VAT
For goods and services purchased with a value of 5 million VND or more, including VAT, businesses need to have non-cash payment documents to meet the deduction requirements, except in specific cases as stipulated.
For offsetting payments between purchase and sale values or for borrowing goods, the offsetting method must be stipulated in the contract and documented for verification and confirmation between the two parties. In cases of offsetting through a third party, a tripartite record is required depending on the applicable scope.
Conditions for deductible expenses when calculating corporate income tax.
Expenses for goods, services, and other payments of 5 million VND or more per transaction must be supported by non-cash payment documents to qualify as deductible expenses. The method for determining non-cash payment documents is governed by VAT tax laws.
Multiple purchases under 5 million VND in the same day
Is it necessary to issue an invoice when offsetting debts?
Offsetting debts is a payment method, not a new sales transaction or service provision. Businesses do not issue additional invoices simply for offsetting; invoices are issued for each original purchase or service transaction as per regulations.
Is the 20 million VND threshold still applicable?
For current transactions falling under the new regulations, businesses need to check against the 5 million VND threshold, and no longer mechanically apply the 20 million VND threshold from the old guidelines. For transactions from the previous period or the transitional period, the applicable document should be determined at the time of occurrence.
See further instructions on non-cash payment voucher.
Internal control points before approving clearing
In businesses with numerous invoices and multiple departments involved, offsetting accounts payable is more than just a single accounting entry. The process needs to clearly define who checks the data, who assesses tax eligibility, who approves the settlement, and who updates the status on the system.
Check the subject, invoice, balance, due date, and any disputed items.
Examine the account, recording period, journal entry, and its impact on the detailed ledger.
Check the contract, payment documents, and conditions for deductions/allowed expenses.
Verify authority, offset amount, difference amount, and transaction risk.
Update payment status, save processing history, and track remaining balance.
To place this transaction within the overall accounts receivable cycle, see more. What are Accounts Receivable (AR)? and how to track DSO index.
Common mistakes when offsetting accounts payable
The risks often lie not in the offsetting calculations themselves, but in misidentifying the nature of the transaction, lacking contractual basis, incorrectly recording the subject matter, or omitting the difference.
Risk: The figures have been confirmed, but there is no basis for reducing the obligation.
Handle: Add content confirming the method and amount of compensation.
Risk: The software shows that allocation has been made, but the records between the parties are not yet complete.
Handle: Separate software operations from the payment record.
Risk: The tax records are inconsistent with the actual payments made.
Handle: Review the annex or supplementary agreement as appropriate.
Risk: The detailed ledger differs from the minutes and is difficult to verify.
Handle: Verify each item, contract, and invoice before recording it in the ledger.
Risk: Does not meet the requirements for non-cash payment documents.
Handle: Pay the remaining balance using a suitable method and keep the receipt.
Risk: It does not accurately reflect the rights and obligations of each business.
Handle: Create a accounts payable/receivable flowchart and identify the journal entries for each relationship.
How does Bizzi assist with debt reconciliation and offsetting?
Bizzi ARM helps businesses centralize accounts receivable data by invoice, contract, and customer; track pending payments; manage aging accounts receivable, DSOs, and update accounts receivable status. While not a replacement for legal document approval, the solution helps the finance department maintain more consistent data control and processing history.
Frequently Asked Questions about Offsetting Debts
What is document offsetting?
Document offsetting is the process of allocating payment documents to individual invoices or accounts payable within the software. It does not automatically replace the agreement and documentation for offsetting obligations.
Are offsetting and offsetting debts different?
In accounting practice, these two terms often describe using offsetting accounts receivable and accounts payable to offset each other. The documentation should clearly describe the nature, amount, and remaining obligations.
Does offsetting debts need to be stipulated in the contract?
To meet the tax-mandated clearing and settlement requirements, this method must be specifically stipulated in the contract or appropriate supplementary documentation.
How is the offsetting of debts between two parties accounted for?
When the same entity acts as both a customer and a supplier, the typical accounting entry for the confirmed offsetting is Debit Account 331 / Credit Account 131.
What documents are needed for a tripartite debt offsetting?
The documentation should include the relationship and obligations of each party, original documents, reconciliation data, a tripartite offsetting record, and documents proving payment of the remaining balance.
How are differences of 5 million VND or more handled?
If the difference is paid in cash and the business needs to meet tax requirements, this amount must be supported by non-cash payment documentation as prescribed.
Conclusion and legal basis
Before writing off liabilities, accountants need to determine whether the obligations are eligible for offsetting, whether the contract specifies the payment method, whether the supporting documents accurately reflect the figures, and whether the difference is supported by appropriate documentation.
If any of the above issues remain unclear, the business should maintain the current balance for further reconciliation instead of making an early journal entry.
- Civil Code No. 91/2015/QH13, Articles 378 and 379.
- Decree 181/2025/ND-CP and the amendments and supplements currently in effect.
- Decree 320/2025/ND-CP Guidelines for Corporate Income Tax Law.
- Circular 99/2025/TT-BTC Guidelines for business accounting procedures.
The legal content has been reviewed up to August 5, 2026. Businesses need to compare the date of occurrence, accounting period, and specific transaction structure before applying it.
