a counterparty is the business or person on the other side of a transaction. when you pay Cloudflare for hosting, Cloudflare is your counterparty. when a customer pays you through Stripe, that customer is your counterparty. the term covers both directions - people you pay (vendors) and people who pay you (customers).
some examples:
- you pay Cloudflare $184/month for hosting → Cloudflare is a counterparty
- you pay your accountant $500 for tax prep → your accountant is a counterparty
- a customer pays you $49/month for your app → that customer is a counterparty
- Apple sends you app revenue after their 30% cut → Apple is a counterparty
- you pay yourself from the LLC (owner's draw) → you are also technically a counterparty
the same business often shows up under different names in your bank transactions. "CLOUDFLARE INC", "Cloudflare", "CLOUDFLARE.COM" are all the same counterparty. grouping these together lets you see total spend per vendor, set a default category once ("Cloudflare is always Software & Subscriptions"), and auto-categorize future transactions from the same counterparty.
this grouping works through aliases. one counterparty can have many aliases - the raw strings from your bank feed. for example, Cloudflare might appear as "CLOUDFLARE INC" and "Cloudflare" in Mercury. Amazon might appear as "AMZN MKTP US", "AMAZON.COM", and "AWS". when a new transaction comes in, the merchant name is matched against known aliases and the counterparty is auto-assigned with your default category.
related
- schedule c lines - which tax line to assign per counterparty