Can a debtor in Israel set off money the creditor owes them against the debt being collected?

Two conditions do the work. The debts must be mutual, meaning each party owes the other in the same capacity, and the debt being set off must be liquidated unless both claims come out of the same transaction. A buyer who withholds payment because the goods were defective is usually inside the same-transaction limb and can set off an unquantified damages claim. A buyer trying to offset an unrelated commission dispute is not, unless that amount is already fixed. Israeli courts also treat timing strictly, so once judgment is entered a set-off argument that could have been pleaded as a defence generally comes too late.

Foreign suppliers meet this most often as the party on the receiving end. If an Israeli customer disputes quality and stops paying, expect a set-off defence, and expect it to survive the early procedural stages, because a claimed defect under the same contract satisfies the statutory test on its face. Send any set-off notice in writing and keep proof of delivery, since the right runs from notice rather than from the underlying breach. A clearly drafted no-set-off clause between businesses is generally enforced. Our guide to payment orders and objections in Israel explains where the defence gets filed.

From the full guide: Payment Orders in Israel: Fast-Track Debt Recovery

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