A running account (or open account) is a continuous commercial account between supplier and buyer in which successive supplies are debited and payments credited without appropriation to specific invoices, leaving a shifting balance. For limitation purposes, where the account is "mutual, open and current" (each side has independent obligations), Article 1 of the Limitation Act gives three years from the close of the year in which the last admitted item was entered; otherwise each debit has its own three-year period. For MSME suppliers, each supply in a running account is due within 15 days of acceptance if no written credit period exists.
How running accounts work in India
The supplier maintains the buyer's ledger: each invoice is a debit, each receipt a credit, and the balance carried forward. Payments are usually round sums that do not match any invoice. Under Sections 59 to 61 of the Contract Act, if the buyer does not indicate which debt a payment covers and the supplier does not appropriate it, it is applied to debts in order of time, so the oldest invoices are cleared first. This matters for limitation: the live balance normally represents the most recent supplies, which keeps the claim within time. Where both parties have claims against each other (for example a buyer who also supplies to the supplier), the account may be "mutual" and Article 1 applies.
Why it matters for getting paid
A running-account balance is recoverable, but the supplier must be able to show the ledger, the invoices behind each debit, and proof of delivery. Buyers often dispute old entries. Annual ledger confirmations and a clean statement of account solve most of this. MSME suppliers should remember that the 15-day rule applies to each supply, which makes the Section 16 interest on a long-carried balance substantial.
How FundRaksha uses it
FundRaksha's advocates reconstruct the running account invoice by invoice, apply receipts in order of time, fix the due date of each surviving debit and compute interest accordingly, then present the result as a single clear statement in the notice. This reconstruction is part of the free assessment. 700+ businesses have been paid through FundRaksha; fee 30% on recovery.
Worked example (hypothetical)
A Surat fabric supplier (small enterprise, no written credit terms) has a running account with a Mumbai garment maker. Over the year it supplied ₹30,00,000 in 20 invoices and received ₹22,00,000 in round payments. Applying receipts to the oldest invoices, the ₹8,00,000 balance consists of the last five invoices, delivered between 1 September and 1 December. Each was due 15 days after delivery. On 1 March the supplier claims the balance plus Section 16 interest; assuming a 6.5% bank rate (19.5% a year, monthly rests), interest on the five invoices ranges from about 2.5 to 5.5 months each and totals roughly ₹52,000. The notice attaches the full ledger and the five invoices with delivery challans.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.