Two businesses owe each other money. Paying only the difference may seem obvious, especially when cash is tight. But an internal spreadsheet showing a net balance does not by itself establish that both obligations have been legally discharged. If one claim is not due, belongs to another company or is uncertain, withholding payment can create a new dispute.
Set-off in Albania is governed principally by articles 514–523 of the official consolidated Civil Code. It is a way of discharging reciprocal obligations subject to specific conditions and a declaration. This analysis addresses ordinary civil and commercial claims. Insolvency, public claims, financial collateral and other special regimes require separate examination before the general rules are applied.
1. Identify the two legal persons and the two obligations
Article 514 addresses two persons who owe each other money or fungible things of the same kind, with obligations that are due, precise and determined in amount or quantity. The obligations are discharged up to the smaller amount or quantity. Each element matters: the existence of business dealings is not enough.
Start with the legal identity of each creditor and debtor. A parent company, its subsidiary and a trading partner are not interchangeable simply because the finance teams consolidate reports. A claim against one group company cannot automatically be netted against a debt to another. Before looking at balances, compare the contract parties, invoices, assignments and payment instructions.
Next identify the basis and maturity of each claim. An invoice is evidence to examine alongside delivery, acceptance and the payment terms; it is not conclusive merely because it appears in one party’s ledger. If the parties disagree about the price or the existence of a defect claim, record the disagreement rather than presenting the counterclaim as an agreed amount.
2. Due and determined claims: the central practical test
A future instalment and a presently due invoice are not automatically in the same position under article 514. Check the due date, any valid acceleration and amendments. Do not assume that an intended future purchase creates an existing reciprocal debt. A forecast is not the same thing as an enforceable obligation.
The requirement that a claim be precise and determined is particularly important for damages. A business may believe that defective work caused a substantial loss, but the amount can depend on causation, repair evidence, contract terms and legal assessment. Subtracting the highest estimate from an undisputed invoice can leave the business exposed if the conditions for set-off are not met.
This does not mean that every disagreement prevents any consensual solution. The parties can explore a properly documented settlement that establishes what they accept and how the balance will be paid, subject to mandatory law. Distinguish that agreement from a unilateral assertion that statutory set-off has already extinguished everything.
3. The declaration and its delivery
Article 516 provides that set-off is made through a declaration sent by one party to the other. The declaration cannot be conditional or subject to a term. A message saying “we may set off next month if management approves” should therefore not be treated as equivalent to an effective present declaration.
For practical clarity, identify the parties, the legal basis and documents for each claim, their due dates, the amount to be set off and the resulting balance. State the position clearly and preserve evidence of delivery. These drafting and evidence recommendations help establish what was communicated; they are not a substitute for satisfying the statutory conditions.
Where the set-off does not cover the whole claim, or the creditor needs to retain the debt instrument to exercise other rights, article 516 addresses retention with a notation of the declaration and provision of a copy to the other party. Do not simply discard the original evidence once the accounting entry is made.
4. Effective date, interest and limitation
Article 515 connects discharge to the date when the obligations coincide. It also contains a specific rule where interest has been paid on one or both claims, and addresses limitation where it had not been completed when the two obligations came together. The declaration date, the date the conditions existed and the calculation date should not be collapsed into one without analysis.
Prepare a reconciliation showing principal, interest, costs and payments separately. Identify the legal or contractual basis of each component. If the calculation is challenged, a single unexplained net figure makes it harder to determine which part is actually in dispute. A proposed settlement should also say whether interest continues on any remaining balance.
Do not interpret the limitation rule as permission to offset any old invoice indefinitely. The dates and the legal relationship must be checked. If a claim is close to a deadline, obtain advice on protecting it; an informal discussion about netting should not be assumed to preserve every remedy.
5. Objections and claims that need special treatment
Under article 517, a party that does not accept the declaration must immediately notify the declaring party and state its reasons. The Code does not turn that requirement into a universal fixed number of days. A prompt, specific response is preferable to silence followed by an unexplained refusal to pay.
Article 518 prevents set-off without the creditor’s consent for claims arising from death or injury to health, claims that cannot be seized, and tax or levy claims. Those categories should not be inserted into an ordinary commercial netting spreadsheet as though they were standard supplier invoices. Their particular legal regime must be checked.
Article 519 protects third parties that have acquired usufruct or pledge rights over the claim. Article 520 distinguishes the surety’s ability to raise set-off relating to the principal debtor from the principal debtor’s inability to rely on the creditor’s debt to the surety. These rules show why a two-column balance is sometimes legally incomplete.
6. Different payment places, running accounts and assignment
Article 521 addresses obligations payable in different places, requiring necessary transfer expenses to be included. Article 522 deals with monetary claims and obligations in a single account, their agreed ordering and notification of the closing balance, calculation date and previously uncommunicated entries. A failure to object within a reasonable period has consequences under that provision; it is not a universal deadline for every commercial reconciliation.
Article 523 addresses insufficient identification of the obligations and objections to incorrect calculation of principal, expenses and interest. This makes document-level reconciliation valuable. A generic statement that “all balances are cleared” can conceal disagreement about which invoice, cost or payment was actually included.
If a receivable has been assigned, examine article 504 alongside the set-off rules. It contains a specific treatment of the debtor’s defences and set-off against the original creditor. The timing of assignment, notice and maturity can matter. A business should investigate an assignment notice before declaring that an old counterclaim automatically cancels the new creditor’s demand.
7. Two hypothetical examples
First hypothetical: company A owes company B 50,000 units of the same currency, while B owes A 32,000. Assume both obligations are due, precise, determined and otherwise eligible, with no relevant third-party rights or special restrictions. An effective declaration and the applicable rules can discharge 32,000 on each side, leaving A with 18,000 principal to pay. Interest and costs still require a separate reconciliation; the example does not assume they disappear.
Second hypothetical: a contractor invoices 40,000, while the customer estimates 25,000 for defects that the contractor disputes. The customer announces that only 15,000 is payable. Before treating that result as statutory discharge, the parties must assess whether the defect claim meets the conditions, its amount and any relevant contract provisions. An agreed repair-and-payment settlement may resolve the uncertainty; merely naming the estimate a “credit note” does not prove the legal claim.
8. Compare the available routes
Ordinary payment is simple when both claims are undisputed and liquidity permits, but it can increase exposure if the other party will not reciprocate. Set-off may reduce unnecessary cash movements when its conditions are met. A settlement can define disputed claims, timing and releases, but must be authorised and drafted carefully.
A multi-party netting arrangement needs its own analysis and agreement; it should not be described as ordinary reciprocal set-off without checking the parties and rights involved. Assignment is another different mechanism: it changes the creditor rather than simply extinguishing reciprocal debts. Selecting the route requires attention to enforceability as well as the immediate cash result.
9. The decision file for management
Before withholding payment, collect both contracts, invoices, evidence of performance, due dates, prior payments, security documents and assignment notices. Reconcile principal and ancillary sums, record disputed items, check special regimes and identify the person authorised to send the declaration. Coordinate the legal conclusion with the accountant; a ledger adjustment alone is not the legal analysis.
Alba Legal can assist with assessing eligibility, preparing declarations, responding to objections and negotiating settlements. The aim is a traceable decision about which obligation has ended and what remains payable. Official provisions were checked on 3 November 2026. This material is general information and does not replace advice on a specific balance, insolvency situation or dispute.
