What is Clearing?

Banks (or other participants) offsetting their claims and obligations to one another and paying only the remaining net difference. Britannica describes a clearinghouse as an institution set up by firms engaged in similar activities to offset their mutual transactions and limit payments to net balances. As a result of clearing, instead of each payment being made separately, a smaller amount is transferred at the end of the day, which reduces the bank's need for liquidity.

Source: Britannica Money: clearinghouse