If the same contact sells to you and buys from you, your books end up carrying two open balances for one relationship: an invoice sitting under receivables, and a bill sitting under payables. Settling that has traditionally meant a manual journal entry, followed by manually hunting down the right invoice and bill to knock it off against, messy to record and harder to explain to an auditor six months later. Zoho Books has recently added a purpose-built feature for exactly this: Netting. This post covers what it does, how to use it, who actually needs it, the precautions worth taking, and how editing and deletion work.
The Problem Netting Solves
You sell to a party. The same party also supplies to you. So your books carry an outstanding invoice under Accounts Receivable and an outstanding bill under Accounts Payable, for the very same business relationship. Until now, settling that off meant passing a manual journal entry, then hunting down the right invoice and bill to knock off against it. Netting replaces that with a structured entry purpose-built for exactly this situation.
How to Use It: Step by Step
Netting lives under Accountant → Netting. The flow is four steps.
Step 1: Link the customer and the vendor
Zoho Books needs to know the customer record and the vendor record refer to the same real-world party before it will let you net anything between them. This is a one-time link per contact, not something you redo on every netting entry.
Step 2: Create a netting entry and set the netting date
The netting date is the date the set-off is considered effective, which matters for which accounting period the entry lands in.
Step 3: Pick the open invoices and open bills
Select which open invoices and open bills to include, and enter the amount to apply against each. You don't have to net full balances; partial netting against specific line items is supported.
Step 4: Publish
Once published, Zoho Books passes the underlying entry for you: Accounts Payable is debited, Accounts Receivable is credited, and both the invoice and the bill show the applied amount against them. It's recorded as one document with its own number, not a free-floating manual journal entry with no obvious link back to what it actually settled.
Why this matters over the old manual journal workaround: a manual journal entry settling a customer-vendor offset has no inherent link back to which specific invoice and bill it relates to, so anyone reviewing the books later has to reconstruct that connection by hand. A netting entry carries the invoice and bill reference on its face, with a full audit trail, which is exactly what makes it defensible under review months later.
One structured entry replaces a manual journal that had no inherent link back to which invoice and bill it settled.
Who This Actually Helps
- Job work and contract manufacturing, where the same party is both a customer for finished output and a raw material supplier.
- Dealers and distributors running mutual purchase-sale arrangements with the same counterparty.
- Group entities with inter-company transactions that regularly generate offsetting receivables and payables.
- Agencies netting client reimbursements against their own fees.
Precautions to Take
Netting settles the balance, not the underlying supply
The original invoice and bill remain the actual record of what was supplied and received. A netting entry is a settlement mechanism between two open balances, not a correction to, or replacement for, the underlying transactions themselves.
GST and TDS positions on the original documents don't move
Your GST and TDS positions on the original invoice and bill stay exactly where they were. Netting doesn't reverse, adjust, or reassess the tax treatment already recorded against either document; it only clears the outstanding balances between them.
Keep a signed set-off confirmation from the counterparty on file
A netting entry is effectively a mutual agreement to set off two balances rather than settle them in cash, and auditors will ask for evidence that both parties agreed to it, not just that Zoho Books recorded it. A signed confirmation from the counterparty covering the netting date and the amount is worth having ready before the audit, not scrambled together during it.
Confirm you're linking the correct pair
Before linking a customer and vendor record, confirm they genuinely represent the same real-world entity, not two similarly named but unrelated contacts. Once linked and netted, unwinding a mistaken link is more work than checking carefully the first time.
Editing and Deleting a Netting Entry
Zoho Books hasn't published exhaustive documentation on this specific feature yet, since it's a recent addition, but the behavior follows the same pattern the platform uses consistently across its other linked transaction types, such as manual journals and credit notes.
Editing
As with manual journals, expect a distinction between draft and published status: changes are straightforward while a netting entry is still in draft, and once published and applied against specific invoices and bills, editing it directly is more restricted, since the entry is now tied to other documents' balances.
Deletion
Deleting a published netting entry outright would reopen the invoice and bill balances it applied against, breaking the audit trail those documents relied on. In line with how Zoho Books treats other linked, published documents, such as credit notes, the safer and more likely available path is to void or reverse the entry rather than hard-delete it, which restores the original open balances cleanly while keeping a record that the netting entry existed and was reversed.
If a netting entry needs correcting
The more defensible approach, consistent with how Zoho Books generally handles corrections to published, linked transactions, is to reverse or void the incorrect entry and create a fresh, correct one, rather than editing a published entry after the fact. This keeps the audit trail intact rather than leaving a modified entry with no record of what it originally said.
Since this is a newly rolled-out feature, exact menu labels and plan availability can shift as Zoho continues to refine it. Check the specific options on the entry's own detail page in your organization, and confirm Netting is included in your current plan before building a workflow around it.
Frequently Asked Questions
Where to Go From Here
For the broader refund and credit workflows Netting sits alongside, see our guide to recording refunds in Zoho Books. For GST setup fundamentals that underpin the tax positions netting leaves untouched, see how to set up GST in Zoho Books.
We keep an eye on what's new in Zoho Books so you don't have to.
New features roll out quietly, and knowing when one actually changes how you should be recording something, versus when it's a nice-to-have, is part of running your books on Zoho properly. We set up workflows like netting correctly the first time, with the audit trail and documentation an auditor will actually ask for.
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