Credit clearing

Credit clearing is a practice in which a group of banks or businesses offset mutual obligations by netting payments and settling only the remainder. While clearing generally refers to confirming and processing payments before settlement, credit clearing specifically refers to cancelling out incoming and outgoing payments of equal or near-equal value.

This process originated between banks in London, who would send their checks to the clearing house at the end of each day. Rather than making each payment individually, parties calculate the net balance of what they owe and are owed, and then settle only the difference. After the calculations were made there would be a single payment to or from each bank. This can significantly reduce the liquidity and time needed to complete transactions.