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How long can one carry receivables on their books?

SamSue (Partner) (64 Points)

25 June 2016

Dear All: We are a partnership firm. How long can one carry receivables on their books? Legally, if one is not able to collect the receivables can the debtor write-off this amount after certain number of years. If yes, please let me know the number of years and how can one protect themselves from being written off. Thanks and Regards, SamSue

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Vivek Kurup (.) (355 Points)
Replied 26 June 2016

We can carry the receivables as long as we have an enforceable legal claim against such debts.

The amount of receivables to be carried is the amount which can be reasonably expected to be realized from that debtor.

Once the limitation applies we cannot legally enforce a claim against such debtor and hence it has to be written off as baddebts.

I think the limitation period is 3 years (from the date of expiry of the credit period/ date of delivery of goods) as per points 14 & 15 of Part-II of the schedule to the Limitation Act 1963.

I think (And I am not sure), if you have to carry the amount further, you have to get a written acknowledgement of debt from the debtor before the expiry of this three years. Because, after executing such an acknowledgement, limitation will be recalculated from the date of such written acknowledgement.

You better seek legal opinion on the matters relating to Limitation Act mentioned above.