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Contra-Accounts
Some companies
find that they are reciprocal suppliers with their customers, so only
the net amount needs to be paid regularly. Certain industries, such as
the energy companies, have set up netting arrangements of this sort to
facilitate payments without the need of moving large amounts of duplicate
funds. The technique of contra-account settlement may be perfectly natural
between two strong companies, but it can also be useful in cases where
a strong supplier wants to protect itself against a customer that is financially
weak. The supplier may insist on a contra-account arrangement. When the
right of offset is to be exercised, the selling terms should be specific
in stating that a contra-account arrangement has been made. It is important
for a creditor to know if a customer has made such arrangements with other
suppliers, since the supplier with the contra-account arrangement has
a potentially stronger call on the customer's assets.
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