Offsetting is the mutual closing of a debt against a receivable, that is, counting an incoming payment against the open debit records (usually invoices) in a current account. The task of tying the collection a dealer sends to the right current account and the right invoices is, in short, called offsetting. When the payment lands in the current account the balance drops; determining which open invoice that payment closes is the second step of offsetting.
In B2B sales and collections processes, offsetting is daily work. When a dealer sends ₺50.000 by bank transfer, that amount first has to be posted to the right current account (Demir Ticaret, not Demir Otomotiv by mistake) and then marked against the due invoices it closes. If this matching is not done, even when the current account balance looks correct the open invoices stay open, and credit limit and due date tracking work incorrectly.
In this article we explain, with examples, what offsetting is, how to offset an incoming payment to the right current account, and how automatic offsetting works behind the scenes.
Offsetting is the mutual closing of a debt against a receivable; it is the act of counting an incoming payment in the current account against open invoices to close them.
What does offsetting mean? The logic of offsetting in the current account
In accounting and current account language, offsetting means "counting" or "closing." In a current account, the debit side holds invoices and the credit side holds collections (transfer, check, virtual POS, payment link collection). Offsetting is the act of closing one or more invoices on the debit side by tying a payment that lands on the credit side to them.
Let's look at it through an example. Yıldız Bayi's current account has three open invoices: ₺18.000 dated 12 May, ₺22.000 dated 20 May and ₺15.000 dated 2 June. On 10 June the dealer sends a ₺40.000 transfer. If you offset this ₺40.000 against the first two invoices (₺18.000 + ₺22.000), those two invoices close and the third ₺15.000 invoice stays open. The current account balance drops to ₺15.000 and due date tracking continues only on the invoice that remains open.
If the balance is simply lowered without offsetting, the total debt looks correct but it is unclear which invoice was paid. This causes problems at reconciliation: the dealer says "I paid the May invoices," but in your system the invoice still shows as open. Correct offsetting keeps the balance and the invoice list consistent with each other.
Offsetting an incoming payment to the right current account
The most critical step of offsetting is posting the payment to the right current account. On a transfer that lands on the bank statement, the sender name is not always identical to the current account name. Are "Demir Tic. Ltd." and "Demir Ticaret A.Ş." in the system the same dealer, or two different accounts? If there is no invoice number or current account code in the description field, the matching is done by hand and the error risk goes up.
Offsetting to the wrong current account leads to several problems. If the payment is posted to another dealer's account, the paying dealer's balance looks higher than it is and the credit limit appears full; their new order may be blocked. The balance of the dealer who did not receive the payment is artificially reduced. For this reason, tying the incoming payment to the right current account is the first condition of offsetting, coming before invoice matching.
In practice there are methods that make correct account matching easier: having dealers write their current account code in the payment description, defining a unique reference for each dealer on the virtual POS or payment link, or using collection channels matched to the account on the bank side such as DBS (direct debit system (DBS)). In B2BPro, when an incoming payment lands in the current account, the collection record is tied directly to that account and marked on the offsetting screen through the open invoice list.
How does automatic offsetting work?
Automatic offsetting is the system itself distributing an incoming payment to open invoices according to a defined rule. The most common rule is FIFO logic: the payment closes invoices in order, starting from the one with the earliest due date. A ₺40.000 collection closes invoices starting from the oldest open invoice until the amount runs out; if any balance remains it waits in the current account as an advance.
Let's make it concrete with an example. Demir Ticaret's open invoices: 1 May ₺25.000, 15 May ₺30.000, 1 June ₺20.000. The incoming payment is ₺45.000. With FIFO, automatic offsetting first closes the 1 May invoice (₺25.000) in full, then partially offsets the remaining ₺20.000 against the 15 May invoice. ₺10.000 of the 15 May invoice stays open, and the 1 June invoice stays open untouched. Partial offsetting is the case where one part of an invoice is closed and the rest stays open, and it is common in automatic offsetting.
Automatic offsetting provides speed and consistency, but it is not always the right rule. A dealer may want to skip a specific invoice (for example one subject to a return or dispute) and pay another. For this reason a good system suggests the automatic offsetting but lets the user manually select invoices and adjust the offsetting. In B2BPro, an incoming collection is automatically offset against open invoices in due date order; when needed the user can change the offsetting on an invoice basis.
Offsetting and its relationship with reconciliation and risk tracking
Correct offsetting makes month-end reconciliation easier. When the mutual balance with the dealer is always up to date and open on an invoice basis, sending a reconciliation statement creates the clarity of "this invoice closed, this one is open." If offsetting is missing, even when the balance matches the invoice line items do not, and reconciliation drags on.
Offsetting is also essential for the credit limit and due date tracking to work correctly. When an open invoice is not closed, the dealer shows as a debtor in the system even though they have paid; this needlessly fills the credit limit, triggers an overdue alert and sends wrong information to the field sales team. Doing offsetting on time and correctly when a collection arrives ensures the balance, risk and due date data reflect reality.
Related to this, the concepts of current account, collections, reconciliation and credit limit define the broader process that offsetting takes place within. Handling offsetting together with these concepts helps you build a disciplined collections flow that ties every incoming payment to the right current account and the right invoice.
Key takeaways
- Offsetting is counting an incoming payment against the open debit records (invoices) in a current account to close them.
- The first step is tying the payment to the right current account; offsetting to the wrong account distorts the balance of both the payer and the one who did not receive the payment.
- Automatic offsetting usually distributes the payment with FIFO logic, starting from the earliest due invoice; if the amount is not enough, partial offsetting occurs.
- Automatic offsetting provides speed, but the user must be able to manually adjust the offsetting on an invoice basis when needed.
- Correct and timely offsetting makes reconciliation easier and ensures the credit limit and due date tracking reflect reality.
Frequently asked questions
What is offsetting?
Offsetting is the mutual closing of a debt against a receivable. In a current account it means counting an incoming payment against open invoices to close those invoices.
What happens if an incoming payment is offset to the wrong current account?
The balance of the dealer who made the payment looks higher than it is and, with the credit limit needlessly filled, their new order may be blocked; the balance of the account that did not receive the payment is artificially reduced. For this reason the first condition of offsetting is correct account matching.
By what rule does automatic offsetting work?
The most common rule is FIFO: the payment closes invoices in order, starting from the open invoice with the earliest due date. The process stops when the amount runs out; if the payment does not cover an invoice in full, partial offsetting occurs for that invoice.
What does partial offsetting mean?
Partial offsetting is when an incoming payment closes only a part of an invoice and the remaining amount stays open. For example, if ₺20.000 is offset against a ₺30.000 invoice, ₺10.000 stays open.
Can I manually change the automatic offsetting?
Yes. In a good system automatic offsetting works as a suggestion; in situations such as a return, dispute or dealer request, the user can adjust the offsetting by selecting on an invoice basis which invoices will be closed.
What is offsetting's relationship with reconciliation?
Correct offsetting makes reconciliation easier because it clarifies, on an invoice basis, which debt was closed. If offsetting is not done, even when the total balance matches the invoice line items do not, and mutual reconciliation drags on.