What is the right of offset and how does it affect unpaid invoices?

The right of offset comes up in two contexts for service businesses. The first is where a client claims they owe you less because you owe them a credit — for example, a refund for a cancelled portion of work. They may offset what they owe on your invoice against what you owe them in refund, paying only the net amount. Whether this is legitimate depends on whether the credit claim is valid and whether the original contract permits offset.

The second context is more adversarial: a client who is unhappy with some aspect of your work applies an offset against your invoice unilaterally — without your agreement — and pays only the remainder. This is sometimes called a 'self-help' offset. Its legality varies by state and contract. Some contracts explicitly prohibit offset without prior written consent; others are silent. If your contracts don't address this, a client claiming a large offset can leave you collecting a disputed amount that is hard to recover without legal action.

To protect against unilateral offset, service contracts should include a clause that payment of any undisputed amount is due in full and that any disputed amount must be separately identified in writing before the due date. This prevents a client from paying 60% of an invoice with no explanation and calling it even. Not legal advice; have your standard contract reviewed to assess your current offset exposure.