Credit Netting

DEFINITION of 'Credit Netting'

A system whereby the number of credit checks on financial transactions is reduced by entering into agreements that simply net all transactions. These agreements are made between large banks and other financial institutions and place all current and future transactions into one agreement, removing the need for credit checks on each transaction.

BREAKING DOWN 'Credit Netting'

Most financial transactions that deal with credit involve credit checks to ensure that the borrowing party can meet the obligation of the transactions. However, due to the active nature of large market participants, the constant checking and rechecking of credit is not only time consuming, but also has the potential to create missed opportunities. The process becomes more efficient for all parties involved if they enter into larger scale agreements.

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RELATED FAQS
  1. What's the difference between a bank guarantee and a letter of credit?

    A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure ... Read Full Answer >>
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