Netting is similar to the concept of setoff, except that setoff is typically effected under a single agreement or transaction while netting occurs when parties to two or more agreements agree to aggregate payments across agreements in order to simplify and reduce payment obligations.

Under a netting arrangement between two parties, amounts owed under different agreements are aggregated so that the party owing the greater aggregate amount under the agreements to be netted makes a payment to the party owing the lesser aggregate amount. The net payment to be made is equal to the difference obtained when subtracting the amount owed by the party owing the lesser aggregate amount from the amount owed by the party owing the greater aggregate amount.

The same may be effected where there are more than two agreements between the parties. In that case, the amounts due and owing by the parties are aggregated and a net payment is made by the out-of-the-money party to the in-the-money party. Amounts owed among more than two parties may be netted as well. Netting arrangements are typically set out in a master netting agreement.