--- path: /learn/payment-netting/ title: "Payment netting: how it works and when to use it" description: Payment netting offsets eligible obligations so businesses settle the difference. Learn bilateral and multilateral netting, liquidity tradeoffs, and how it differs from batching. image: /og/2026-q4/og_2026-q4_learn_payment-netting_title-f5_v01.png publishDate: 2026-10-20 label: Enterprise timeToRead: 5 faq: - question: What is the difference between net and gross settlement? answer: Gross settlement settles each obligation individually. Net settlement offsets eligible obligations and settles the resulting balances. A smaller net payment can reduce funding needs, while deferred settlement leaves obligations outstanding until settlement occurs. - question: Is payment netting the same as batch processing? answer: No. Batch processing groups payment instructions for processing together. Netting offsets eligible obligations to calculate a smaller set of amounts to settle. A batch can contain payments that have not been netted. - question: Can stablecoins be used to settle a net payment? answer: Yes, when the parties agree to the asset and settlement method and the payment is supported. A stablecoin rail can transfer the resulting net balance. The netting agreement, calculation, records, and treatment of disputes remain separate requirements. heroTitle: "Payment netting: how it works and when to use it" seoTitle: What is netting in payments? Bilateral and multilateral netting socialTitle: Payment netting explained locale: en canonical: https://tempo.xyz/learn/payment-netting/ --- # Payment netting: how it works and when to use it _Payment netting offsets eligible amounts that parties owe each other so they settle the difference. It can reduce the funds needed for settlement, but the agreement, timing, and records determine how it works in practice. [Contact Tempo](/contact/) to discuss stablecoin settlement for your payment flow._ A business can send money to a counterparty while waiting for money from that same counterparty. Settling every payment separately means arranging funding for both flows, even when much of their value cancels out. Payment netting gives the parties a way to calculate and settle a smaller balance. For treasury and payment operations teams, the useful starting point is the underlying obligations: who owes whom, in which asset, and when payment is due. ## What netting means in payments Netting is an agreed process for offsetting positions or obligations. In payment netting, parties combine eligible amounts they owe one another and calculate the balance to pay. Net settlement is the subsequent transfer that discharges that balance. The [CPMI glossary](https://www.bis.org/committees/cpmi/glossary) distinguishes the calculation of net positions from settlement itself. Eligibility matters. Parties need agreed rules for the counterparties, currencies, due dates, and obligations included. A calculation that offsets two ledger entries does not, by itself, establish that the original obligations have been legally discharged. ## An illustrative payment netting example Suppose Company A owes Company B $120,000, and Company B owes Company A $90,000. Both payments are due on the same date in the same currency and qualify under their netting agreement. Without netting, the parties make two transfers totaling $210,000. With payment netting, Company A pays Company B the $30,000 difference. This example illustrates a reduction in the amount transferred. It does not establish an equivalent reduction in cash required: actual funding needs also depend on payment timing, available balances, and whether incoming funds can be reused. ## Bilateral and multilateral netting **Bilateral netting** offsets eligible obligations between two parties, as in the example above. It can suit a relationship with recurring payments in both directions. **Multilateral netting** covers three or more parties under a shared arrangement. Each participant's eligible payables and receivables contribute to its net position. The arrangement specifies how those positions are settled and who is responsible if a participant cannot pay. A group treasury function evaluating multilateral netting across subsidiaries needs more than a consolidated total. Each entity still needs records showing which obligations were included, its resulting balance, and how settlement affects its own accounts. ## Payment netting and close-out netting Payment netting generally concerns amounts due for settlement under the agreed rules. **Close-out netting** applies after a specified event, such as a counterparty default, and calculates a net amount across terminated contracts. These arrangements serve different purposes. The [Basel Committee's guidance on foreign exchange risks](https://www.bis.org/committees/bcbs/basel-consolidated-guidelines/module/rma/20) also distinguishes position netting from legally binding obligation netting. A net payment calculation can coexist with gross legal obligations. Enforceability depends on the agreement and relevant jurisdictions, including how insolvency rules apply. ## The tradeoff between net and gross settlement Gross settlement processes each payment individually. Net settlement uses the balances remaining after eligible obligations have been offset. Netting can lower liquidity requirements because incoming and outgoing amounts offset each other. When a system waits to accumulate payments before settling, however, obligations remain outstanding during that interval. The [BIS explains this tradeoff](https://www.bis.org/publications/innovations-payments): deferred net settlement can save liquidity, while the delay creates exposure to a participant failing to settle as expected. The practical choice depends on the flow. A time-sensitive supplier payment may need to settle before the next netting cycle. Recurring obligations between counterparties may offer more opportunity to offset. Teams should evaluate the amount to fund alongside the time payments remain unsettled. ## Batch processing is different from netting A batch groups instructions for processing. It can still contain many separate payments at their original amounts. Netting changes the balances to settle by offsetting eligible obligations. The distinction also applies to onchain payments. Executing several transfers in one transaction does not automatically calculate net balances or create a netting agreement. An atomic batch makes its included calls succeed or fail together; that execution property is separate from the legal treatment of the obligations. ## Using stablecoins for the resulting payment Once parties calculate and agree their net balance, they can use an agreed settlement rail to pay it. [Stablecoin payments](/learn/stablecoin-payments/) can serve this role where the asset, network, and counterparties support the flow. Tempo provides near-instant onchain settlement for the resulting stablecoin transfer. A [payment memo](https://tempo.xyz/developers/docs/guide/payments/send-a-payment/) can carry a reference to the netting statement, helping connect the transfer to the obligations it settles. Keep the detailed statement in the accounting system. The business or its application still determines eligibility, calculates the balance, handles disputes, and maintains the agreement. If either party needs bank money, conversion and bank delivery remain additional steps. Start with the [stablecoin settlement evaluation guide](/learn/stablecoin-settlement/) to assess those requirements. ## FAQ ### What is the difference between net and gross settlement? Gross settlement settles each obligation individually. Net settlement offsets eligible obligations and settles the resulting balances. A smaller net payment can reduce funding needs, while deferred settlement leaves obligations outstanding until settlement occurs. ### Is payment netting the same as batch processing? No. Batch processing groups payment instructions for processing together. Netting offsets eligible obligations to calculate a smaller set of amounts to settle. A batch can contain payments that have not been netted. ### Can stablecoins be used to settle a net payment? Yes, when the parties agree to the asset and settlement method and the payment is supported. A stablecoin rail can transfer the resulting net balance. 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