compensating transaction

A compensating transaction is a process used to reverse or cancel a previous action or agreement when circumstances change or an error occurs. Instead of undoing the original transaction directly, a new transaction is performed to offset its effects, restoring the system or account to its prior state. For example, if a payment was made mistakenly, a compensating transaction would be issued to cancel or refund that payment. This approach helps maintain accurate records and consistency, especially in complex systems like financial or business operations, ensuring that errors are corrected without disrupting overall processes.