diff --git a/beancount_format.py b/beancount_format.py
index a1bf874..486ad57 100644
--- a/beancount_format.py
+++ b/beancount_format.py
@@ -804,6 +804,139 @@ def format_net_settlement_entry(
     )
 
 
+def format_fiat_net_settlement_entry(
+    user_id: str,
+    cash_account: str,
+    receivable_account: str,
+    payable_account: Optional[str],
+    credit_account: Optional[str],
+    cash_paid_fiat: Decimal,
+    total_receivable_fiat: Decimal,
+    total_payable_fiat: Decimal,
+    credit_overflow_fiat: Decimal,
+    fiat_currency: str,
+    description: str,
+    entry_date: date,
+    payment_method: str = "cash",
+    reference: Optional[str] = None,
+    settled_entry_links: Optional[List[str]] = None,
+) -> Dict[str, Any]:
+    """Fiat cash settlement that nets receivable and payable for one user.
+
+    Implements the contract from libra-#33 (settlement netting) and
+    libra-#41 (credit-balance overflow). Builds a 2- to 4-leg transaction
+    depending on what the user has open:
+
+      - Cash + Receivable only (2-leg)     — pure receivable, exact pay
+      - Cash + Receivable + Credit (3-leg) — overpay against pure receivable
+      - Cash + Receivable + Payable (3-leg) — nancy's #33 scenario, exact pay
+      - Cash + Receivable + Payable + Credit (4-leg) — net + overpay
+
+    The receivable leg is always present (this endpoint is `/receivables/settle`).
+    The payable leg appears when the user has open expenses being netted against
+    the receivable. The credit leg appears when cash > settle target, absorbing
+    the overflow as a liability libra owes the user going forward.
+
+    Constraint enforced inline:
+        cash_paid_fiat = total_receivable_fiat - total_payable_fiat + credit_overflow_fiat
+
+    Args:
+        user_id: User ID
+        cash_account: Payment-method account name (e.g. "Assets:Cash")
+        receivable_account: User's receivable account being cleared
+        payable_account: User's payable account being cleared (omit when no payable)
+        credit_account: User's credit account receiving overflow (omit when no overflow)
+        cash_paid_fiat: What the user paid in cash, unsigned
+        total_receivable_fiat: Gross receivable being cleared (unsigned, 0 if none)
+        total_payable_fiat: Gross payable being cleared (unsigned, 0 if none)
+        credit_overflow_fiat: Excess cash going to credit (unsigned, 0 if none)
+        fiat_currency: Currency code (EUR, USD, etc.)
+        description: Entry narration
+        entry_date: Date of settlement
+        payment_method: cash / bank_transfer / check / other
+        reference: Optional caller-supplied reference (becomes an extra link)
+        settled_entry_links: Source entry links being cleared
+            (e.g. `["exp-abc", "rcv-def"]`). The audit trail for which
+            originals this settlement reconciles.
+
+    Returns:
+        Fava API entry dict ready for `fava.add_entry`.
+
+    Raises:
+        ValueError: if any amount is negative, or if the cash-balance
+            constraint above is not satisfied.
+    """
+    for label, value in (
+        ("cash_paid_fiat", cash_paid_fiat),
+        ("total_receivable_fiat", total_receivable_fiat),
+        ("total_payable_fiat", total_payable_fiat),
+        ("credit_overflow_fiat", credit_overflow_fiat),
+    ):
+        if value < 0:
+            raise ValueError(f"{label} must be non-negative; got {value}")
+
+    expected_cash = total_receivable_fiat - total_payable_fiat + credit_overflow_fiat
+    if abs(cash_paid_fiat - expected_cash) > Decimal("0.01"):
+        raise ValueError(
+            f"cash_paid_fiat {cash_paid_fiat} does not match expected "
+            f"{expected_cash} (= receivable {total_receivable_fiat} "
+            f"- payable {total_payable_fiat} + credit {credit_overflow_fiat})"
+        )
+
+    if total_payable_fiat > 0 and not payable_account:
+        raise ValueError("payable_account required when total_payable_fiat > 0")
+    if credit_overflow_fiat > 0 and not credit_account:
+        raise ValueError("credit_account required when credit_overflow_fiat > 0")
+
+    postings: List[Dict[str, Any]] = [
+        {"account": cash_account, "amount": f"{cash_paid_fiat:.2f} {fiat_currency}"},
+        {"account": receivable_account, "amount": f"-{total_receivable_fiat:.2f} {fiat_currency}"},
+    ]
+    if total_payable_fiat > 0:
+        postings.append({
+            "account": payable_account,
+            "amount": f"{total_payable_fiat:.2f} {fiat_currency}",
+        })
+    if credit_overflow_fiat > 0:
+        postings.append({
+            "account": credit_account,
+            "amount": f"-{credit_overflow_fiat:.2f} {fiat_currency}",
+        })
+
+    payment_method_map = {
+        "cash": ("cash_settlement", "cash-payment"),
+        "bank_transfer": ("bank_settlement", "bank-transfer"),
+        "check": ("check_settlement", "check-payment"),
+        "btc_onchain": ("onchain_settlement", "onchain-payment"),
+        "other": ("manual_settlement", "manual-payment"),
+    }
+    source, tag = payment_method_map.get(
+        payment_method.lower(), ("manual_settlement", "manual-payment"),
+    )
+
+    entry_meta: Dict[str, Any] = {
+        "user-id": user_id,
+        "source": source,
+        "payment-type": "net-settlement",
+    }
+
+    links: List[str] = []
+    if settled_entry_links:
+        links.extend(settled_entry_links)
+    if reference:
+        links.append(sanitize_link(reference))
+
+    return format_transaction(
+        date_val=entry_date,
+        flag="*",
+        narration=description,
+        postings=postings,
+        tags=[tag, "settlement", "net-settlement"],
+        links=links,
+        meta=entry_meta,
+    )
+
+
 def format_revenue_entry(
     payment_account: str,
     revenue_account: str,
diff --git a/tests/test_settlement_api.py b/tests/test_settlement_api.py
new file mode 100644
index 0000000..442a01e
--- /dev/null
+++ b/tests/test_settlement_api.py
@@ -0,0 +1,342 @@
+"""Settlement netting + credit overflow — libra-#33 + libra-#41.
+
+`POST /libra/api/v1/receivables/settle` with `settled_entry_links=None`
+(the default) auto-detects open entries in both directions, builds a
+3-leg settlement transaction that zeros out both per-user accounts when
+the user has open balances on both sides (libra-#33's nancy scenario),
+and routes any excess cash to `Liabilities:Credit:User-X` (libra-#41).
+
+Underpay without explicit entry-picks returns 400 with diff details so
+the operator can either pay the exact net or specify `settled_entry_links`.
+"""
+import importlib
+from uuid import uuid4
+
+import pytest
+
+from .helpers import (
+    approve_entry,
+    get_balance,
+    list_user_entries,
+    post_expense,
+    post_receivable,
+    settle_receivable,
+)
+
+
+def _libra_module(submodule: str):
+    for prefix in ("lnbits.extensions.libra", "libra"):
+        try:
+            return importlib.import_module(f"{prefix}.{submodule}")
+        except ModuleNotFoundError:
+            continue
+    raise ModuleNotFoundError(f"libra.{submodule}")
+
+
+async def _approve_and_refresh(client, wallet, super_user_headers, entry_id):
+    """Approve a pending entry and force a Fava reload (libra-#37 workaround)."""
+    await approve_entry(client, super_user_headers=super_user_headers, entry_id=entry_id)
+    await list_user_entries(client, wallet_inkey=wallet.inkey)
+
+
+# ---------------------------------------------------------------------------
+# Nancy's #33 scenario and variants
+# ---------------------------------------------------------------------------
+
+
+@pytest.mark.anyio
+async def test_exact_net_settlement_zeroes_both_per_user_accounts(
+    client, super_user_headers, configured_user, standard_accounts,
+):
+    """Nancy: receivable 100 EUR + payable 50 EUR + 50 EUR cash → 3-leg
+    settlement that zeros both Receivable and Payable for this user.
+
+    Acceptance criteria from libra-#33:
+      - Settlement links every source entry it reconciles.
+      - Per-user balances drop to 0 (not just net to 0 leaving each side open).
+    """
+    user, wallet = configured_user
+    tag = uuid4().hex[:6]
+
+    # Admin records the receivable (cleared on creation).
+    await post_receivable(
+        client,
+        super_user_headers=super_user_headers,
+        user_id=user.id,
+        amount="100.00", currency="EUR",
+        description=f"Rent share {tag}",
+        revenue_account=standard_accounts["revenue_rent"]["name"],
+    )
+    # User submits an expense (pending until admin approves).
+    exp = await post_expense(
+        client,
+        wallet_inkey=wallet.inkey,
+        user_wallet_id=wallet.id,
+        amount="50.00", currency="EUR",
+        description=f"Drill purchase {tag}",
+        expense_account=standard_accounts["expense_food"]["name"],
+    )
+    await _approve_and_refresh(client, wallet, super_user_headers, exp["id"])
+
+    # Sanity check: user owes 50 EUR net (100 receivable - 50 payable).
+    balance_before = await get_balance(client, wallet_inkey=wallet.inkey)
+    eur_before = balance_before.get("fiat_balances", {}).get("EUR")
+    assert float(eur_before) == pytest.approx(50.0), (
+        f"expected +50 EUR net (user owes libra), got {eur_before}"
+    )
+
+    # Settle the net cash: 50 EUR.
+    await settle_receivable(
+        client,
+        super_user_headers=super_user_headers,
+        user_id=user.id,
+        amount="50.00", currency="EUR",
+        description=f"Cash settlement {tag}",
+    )
+    await list_user_entries(client, wallet_inkey=wallet.inkey)
+
+    # After settlement: net balance is 0.
+    balance_after = await get_balance(client, wallet_inkey=wallet.inkey)
+    eur_after = balance_after.get("fiat_balances", {}).get("EUR", 0)
+    assert float(eur_after or 0) == pytest.approx(0.0), (
+        f"expected 0 EUR after exact net settlement, got {eur_after}"
+    )
+
+    # Per-account breakdown: every user-side account is at 0.
+    # (The acceptance criterion is that NEITHER Receivable nor Payable
+    # carries an open balance — not just that they net to 0.)
+    breakdown = balance_after.get("account_balances", [])
+    for row in breakdown:
+        if user.id[:8] in (row.get("account") or ""):
+            assert float(row.get("eur", 0) or 0) == pytest.approx(0.0), (
+                f"per-user account {row['account']} still has "
+                f"{row.get('eur')} EUR open after complete settlement; "
+                f"libra-#33 acceptance criterion violated"
+            )
+
+    # The settlement entry's links must cover both source entries.
+    # Both rcv-* and exp-* links should appear via Fava query.
+    fava_client_mod = _libra_module("fava_client")
+    fava = fava_client_mod.get_fava_client()
+    unsettled_receivables = await fava.get_unsettled_entries_bql(user.id, "receivable")
+    unsettled_payables = await fava.get_unsettled_entries_bql(user.id, "expense")
+    assert not unsettled_receivables, (
+        f"receivable left as unsettled after complete settlement: "
+        f"{unsettled_receivables}"
+    )
+    assert not unsettled_payables, (
+        f"payable left as unsettled after complete settlement: "
+        f"{unsettled_payables}"
+    )
+
+
+@pytest.mark.anyio
+async def test_overpay_routes_excess_to_credit(
+    client, super_user_headers, configured_user, standard_accounts,
+):
+    """Receivable 100 + payable 50 + cash 70 EUR → settles both per-user
+    accounts to 0, and the 20 EUR excess lands on Liabilities:Credit:User-X
+    (libra now owes the user 20 going forward).
+
+    Headline libra-#41 case: cash > net obligation absorbed into credit.
+    """
+    user, wallet = configured_user
+    tag = uuid4().hex[:6]
+
+    await post_receivable(
+        client,
+        super_user_headers=super_user_headers,
+        user_id=user.id,
+        amount="100.00", currency="EUR",
+        description=f"Receivable {tag}",
+        revenue_account=standard_accounts["revenue_rent"]["name"],
+    )
+    exp = await post_expense(
+        client,
+        wallet_inkey=wallet.inkey,
+        user_wallet_id=wallet.id,
+        amount="50.00", currency="EUR",
+        description=f"Payable {tag}",
+        expense_account=standard_accounts["expense_food"]["name"],
+    )
+    await _approve_and_refresh(client, wallet, super_user_headers, exp["id"])
+
+    # User pays 70 EUR — 20 EUR over the 50 EUR net obligation.
+    await settle_receivable(
+        client,
+        super_user_headers=super_user_headers,
+        user_id=user.id,
+        amount="70.00", currency="EUR",
+        description=f"Overpay settlement {tag}",
+    )
+    await list_user_entries(client, wallet_inkey=wallet.inkey)
+
+    # Net balance should be -20 EUR (libra owes user 20 via credit).
+    balance = await get_balance(client, wallet_inkey=wallet.inkey)
+    eur = balance.get("fiat_balances", {}).get("EUR")
+    assert float(eur) == pytest.approx(-20.0), (
+        f"expected -20 EUR (libra owes user via credit), got {eur} from {balance}"
+    )
+
+    # Credit account should appear in the breakdown with -20 EUR.
+    breakdown = balance.get("account_balances", [])
+    credit_row = next(
+        (r for r in breakdown if "Credit" in (r.get("account") or "")), None,
+    )
+    assert credit_row is not None, (
+        f"Credit account missing from breakdown: {breakdown}"
+    )
+    assert float(credit_row.get("eur", 0)) == pytest.approx(-20.0), (
+        f"expected -20 EUR on Credit:User-X, got {credit_row.get('eur')}"
+    )
+
+
+@pytest.mark.anyio
+async def test_pure_receivable_overpay_creates_credit(
+    client, super_user_headers, configured_user, standard_accounts,
+):
+    """No payable side — receivable 50 + cash 70 → receivable cleared,
+    20 EUR moves to credit. 2-leg + credit overflow leg."""
+    user, wallet = configured_user
+    tag = uuid4().hex[:6]
+
+    await post_receivable(
+        client,
+        super_user_headers=super_user_headers,
+        user_id=user.id,
+        amount="50.00", currency="EUR",
+        description=f"Pure receivable {tag}",
+        revenue_account=standard_accounts["revenue_rent"]["name"],
+    )
+    await list_user_entries(client, wallet_inkey=wallet.inkey)
+
+    await settle_receivable(
+        client,
+        super_user_headers=super_user_headers,
+        user_id=user.id,
+        amount="70.00", currency="EUR",
+        description=f"Pure overpay {tag}",
+    )
+    await list_user_entries(client, wallet_inkey=wallet.inkey)
+
+    balance = await get_balance(client, wallet_inkey=wallet.inkey)
+    eur = balance.get("fiat_balances", {}).get("EUR")
+    # Receivable cleared (0) - credit (-20) = -20 net
+    assert float(eur) == pytest.approx(-20.0), (
+        f"expected -20 EUR after pure overpay, got {eur}"
+    )
+
+
+# ---------------------------------------------------------------------------
+# Validation: underpay without explicit links → 400 with diff
+# ---------------------------------------------------------------------------
+
+
+@pytest.mark.anyio
+async def test_underpay_without_explicit_links_returns_400(
+    client, super_user_headers, configured_user, standard_accounts,
+):
+    """Cash < net obligation and no `settled_entry_links` → 400 with the
+    diff payload so operator can fix the amount or specify entries.
+
+    Without #41's credit overflow + #33's auto-detect, this was the
+    silent-drift case that motivated both issues. Now: explicit, recoverable.
+    """
+    user, wallet = configured_user
+
+    await post_receivable(
+        client,
+        super_user_headers=super_user_headers,
+        user_id=user.id,
+        amount="100.00", currency="EUR",
+        description="Receivable to underpay against",
+        revenue_account=standard_accounts["revenue_rent"]["name"],
+    )
+    await list_user_entries(client, wallet_inkey=wallet.inkey)
+
+    r = await client.post(
+        "/libra/api/v1/receivables/settle",
+        headers=super_user_headers,
+        json={
+            "user_id": user.id,
+            "amount": "30.00",
+            "currency": "EUR",
+            "payment_method": "cash",
+            "description": "Underpay attempt",
+        },
+    )
+    assert r.status_code == 400, f"expected 400, got {r.status_code}: {r.text}"
+    payload = r.json().get("detail")
+    assert isinstance(payload, dict), f"expected structured detail, got {payload!r}"
+    assert payload.get("cash_paid") == 30.0
+    assert payload.get("net_obligation") == 100.0
+    assert payload.get("receivable_total") == 100.0
+    assert payload.get("payable_total") == 0.0
+
+
+@pytest.mark.anyio
+async def test_no_open_receivable_returns_400(
+    client, super_user_headers, configured_user,
+):
+    """User has no open receivables → endpoint can't settle. 400 with a
+    hint pointing at `/payables/pay` for the inverse direction."""
+    user, _ = configured_user
+
+    r = await client.post(
+        "/libra/api/v1/receivables/settle",
+        headers=super_user_headers,
+        json={
+            "user_id": user.id,
+            "amount": "50.00",
+            "currency": "EUR",
+            "payment_method": "cash",
+            "description": "Random deposit attempt",
+        },
+    )
+    assert r.status_code == 400, f"expected 400, got {r.status_code}: {r.text}"
+    assert "no open receivables" in r.text.lower() or "payables/pay" in r.text
+
+
+# ---------------------------------------------------------------------------
+# Legacy explicit-links path: preserved for partial-settle-of-specific-entries
+# ---------------------------------------------------------------------------
+
+
+@pytest.mark.anyio
+async def test_explicit_settled_entry_links_uses_legacy_2_leg_path(
+    client, super_user_headers, configured_user, standard_accounts,
+):
+    """When `settled_entry_links` is provided, backend trusts the caller's
+    list and writes the legacy 2-leg shape. No auto-netting, no credit
+    overflow validation. Required for callers that want to settle a
+    specific subset of entries.
+
+    Requires `amount_sats` per the legacy path's existing contract.
+    """
+    user, wallet = configured_user
+
+    await post_receivable(
+        client,
+        super_user_headers=super_user_headers,
+        user_id=user.id,
+        amount="50.00", currency="EUR",
+        description="Receivable for explicit-link test",
+        revenue_account=standard_accounts["revenue_rent"]["name"],
+    )
+    await list_user_entries(client, wallet_inkey=wallet.inkey)
+
+    # Caller passes explicit (but possibly empty) link list → legacy path.
+    r = await client.post(
+        "/libra/api/v1/receivables/settle",
+        headers=super_user_headers,
+        json={
+            "user_id": user.id,
+            "amount": "50.00",
+            "currency": "EUR",
+            "amount_sats": 55_000,
+            "payment_method": "cash",
+            "description": "Explicit-link settle",
+            "settled_entry_links": [],  # opts out of auto-detect
+        },
+    )
+    assert r.status_code == 200, f"legacy explicit-link path: {r.status_code} {r.text}"
diff --git a/views_api.py b/views_api.py
index 032c15d..fb46809 100644
--- a/views_api.py
+++ b/views_api.py
@@ -1992,7 +1992,11 @@ async def api_settle_receivable(
     # DR Cash/Bank (asset increased), CR Accounts Receivable (asset decreased)
     # This records that user paid their debt
     from .fava_client import get_fava_client
-    from .beancount_format import format_payment_entry, format_fiat_settlement_entry
+    from .beancount_format import (
+        format_payment_entry,
+        format_fiat_settlement_entry,
+        format_fiat_net_settlement_entry,
+    )
     from decimal import Decimal
 
     fava = get_fava_client()
@@ -2002,9 +2006,106 @@ async def api_settle_receivable(
         "cash", "bank_transfer", "check", "other"
     ]
 
-    if is_fiat_payment:
-        # Fiat currency payment (cash, bank transfer, etc.)
-        # Record in fiat currency with sats as metadata
+    if is_fiat_payment and data.settled_entry_links is None:
+        # Auto-detect netting + credit-overflow path (libra-#33 + libra-#41).
+        # The operator hasn't picked specific entries — backend nets all
+        # open balances in both directions, validates cash matches the net
+        # obligation (or absorbs excess into credit), and writes a single
+        # transaction that links every reconciled source entry.
+
+        unsettled_payables = await fava.get_unsettled_entries_bql(data.user_id, "expense")
+        unsettled_receivables = await fava.get_unsettled_entries_bql(data.user_id, "receivable")
+
+        payable_total = sum(
+            (Decimal(str(e["fiat_amount"])) for e in unsettled_payables),
+            Decimal(0),
+        )
+        receivable_total = sum(
+            (Decimal(str(e["fiat_amount"])) for e in unsettled_receivables),
+            Decimal(0),
+        )
+        all_links = (
+            [e["link"] for e in unsettled_payables if e.get("link")]
+            + [e["link"] for e in unsettled_receivables if e.get("link")]
+        )
+
+        if receivable_total <= 0:
+            # Endpoint is `/receivables/settle` — user paying off something
+            # they owe. With no open receivable there's nothing this endpoint
+            # can settle. Operator should use `/payables/pay` (libra pays user)
+            # or wait until the user has open receivables.
+            raise HTTPException(
+                status_code=HTTPStatus.BAD_REQUEST,
+                detail=(
+                    f"User {data.user_id[:8]} has no open receivables to settle. "
+                    f"If libra owes them, use `/payables/pay`. If they want to "
+                    f"deposit credit without an open obligation, that's a future "
+                    f"feature (libra-#41 follow-up)."
+                ),
+            )
+
+        cash_paid = Decimal(str(data.amount))
+        net_obligation = receivable_total - payable_total
+        tolerance = Decimal("0.01")  # forex rounding slack
+
+        if cash_paid + tolerance < net_obligation:
+            # Under-pay without explicit entry-picks — backend can't guess
+            # which receivable(s) the operator means to settle.
+            raise HTTPException(
+                status_code=HTTPStatus.BAD_REQUEST,
+                detail={
+                    "message": (
+                        "Cash paid is less than net obligation. Pay the exact "
+                        "net to clear all open entries, or pass "
+                        "`settled_entry_links` to settle a specific subset."
+                    ),
+                    "cash_paid": float(cash_paid),
+                    "net_obligation": float(net_obligation),
+                    "receivable_total": float(receivable_total),
+                    "payable_total": float(payable_total),
+                    "currency": data.currency.upper(),
+                },
+            )
+
+        credit_overflow = cash_paid - net_obligation
+        if credit_overflow < tolerance:
+            credit_overflow = Decimal(0)
+
+        # Auto-create the user-side accounts as needed.
+        user_payable = None
+        if payable_total > 0:
+            user_payable = await get_or_create_user_account(
+                data.user_id, AccountType.LIABILITY, "Accounts Payable",
+            )
+        user_credit = None
+        if credit_overflow > 0:
+            user_credit = await get_or_create_user_account(
+                data.user_id, AccountType.LIABILITY, "Credit",
+            )
+
+        entry = format_fiat_net_settlement_entry(
+            user_id=data.user_id,
+            cash_account=payment_account.name,
+            receivable_account=user_receivable.name,
+            payable_account=user_payable.name if user_payable else None,
+            credit_account=user_credit.name if user_credit else None,
+            cash_paid_fiat=cash_paid,
+            total_receivable_fiat=receivable_total,
+            total_payable_fiat=payable_total,
+            credit_overflow_fiat=credit_overflow,
+            fiat_currency=data.currency.upper(),
+            description=data.description,
+            entry_date=datetime.now().date(),
+            payment_method=data.payment_method,
+            reference=data.reference or f"MANUAL-{data.user_id[:8]}",
+            settled_entry_links=all_links,
+        )
+    elif is_fiat_payment:
+        # Legacy fiat path — operator provided `settled_entry_links` explicitly,
+        # meaning they're settling a specific subset. Backwards-compatible
+        # 2-leg behaviour: trust the caller's list, no auto-netting, no
+        # credit-overflow validation. Use the auto-detect path above (omit
+        # settled_entry_links) to get netting + credit handling.
         if not data.amount_sats:
             raise HTTPException(
                 status_code=HTTPStatus.BAD_REQUEST,