Netting

What is Netting?

Netting is one of the many ways of managing credit risk and is widely use in all financial settlements. Netting is defined as the method in which payments are offset so that only one party needs to make a payment.

Examples of Netting

Lets suppose two parties X and Y. Party A has to make a payment of USD 10 million to Party B and Party B has to make a payment of USD 11 million to Party A. Under the netting agreement, only Part B will make a payment of USD 1 million to Party A