Legal Question in Business Law in California
i AM A VENDOR AND MY CUSTOMER HAS A OLD CREDIT BALANCE WHAT DOES THE LAW SAY I HAVE TO DO BEFORE I CAN WRIT IT OFF
3 Answers from Attorneys
In general, you must take commercially reasonable steps to collect. This is really a tax accounting issue, however, more than a business law question. I suggest you ask a tax accountant. They will be much better versed in the IRS rules on this than a lawyer.
I think Mr. McCormick has confused debits and credits. I'm assuming what you mean is that your books show that you owe some money to your customer.
There are three possible answers here (at least). First, from an ethical point of view, you should probably make a reasonable effort to refund the money to the customer' i.e., send it a check and see if they cash it.
Then, from an internal accounting point of view, you can probably transfer the credit balance to an income account when it becomes highly unlikely that the customer will claim it back, either because they are out of business, have no further legal recourse, or otherwise.
Finally, from a legal point of view, the customer will lose its right to sue you for its return after the applicable statute of limitations has run its course. If the customer contract is entirely oral, that'd be two years after the earliest date you were delinquent in failing to refund the sum, such that the customer could have, but didn't, sue for it. In the more likely case that the dealings with the customer were based on writings, it'd be four years.
Mr. Whipped is correct. I read your question wrong and too quickly. I agree with his answer.
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