Risks of The Companies in Turkey Against Running Account Regulations
It is very common in Turkey that the companies, specifically from some certain industries such as textile, retail i.e having long term trade relations apply to running account relations which enables the buyer to obtain goods up to the limit and to deduct following the agreed period of time elapsed.
Running accounts are mostly known as non-regulated area and implemented upon verbal consensus between the companies.
However, Turkish Law does not allow to structure an unsettled account considering the foreseen "risk of conflict" in terms of reciprocal demands of the parties.
In this article you will find the legal framework of the running accounts in Turkish Law with special focus to interest implementations.
Pursuant to the article 89 of the Turkish Commercial Law, "Running Account" implementation shall be subject to an agreement in which the parties thereto have receivables from each other either arising from any cause of action or the relationship and relinquish to ask them separately and severally since they agree to structure credit-debit entries on their trade and settle the outstanding after certain period of time.
The records on a running account do not bind the parties unless it has been agreed in written.
The principles applied to running accounts in Turkish law are basically as follows;
Unless otherwise agreed, credits or debits on a running account do not foreclose right of action or defense of either party with respect to the promissory transaction or the contract.
In cases where the credits have been born prior to the current running account and recorded with the consent of the parties shall not be deemed as renewed unless otherwise agreed.
Charging for a commercial paper on a running account would only be affected provided that the amount deemed to have been received and be effective.
At the end of each accounting period, the outstanding amount after the settlement is charged as new item for following accounting period. The amount shall be paid if the contract is terminated or outstanding amount is levied.
The dishonored commercial papers on a running account shall be returned to drawee or endorser and removed from the account immediately.
In Turkish law, pursuant to the article 93 of the Turkish Commercial Law; Receivables to be spent or raised from money and goods delivered to be ready for a particular disposal and non-exchangeable receivables shall not be charged to a running account.
As of the date of determination and recording of the balance the interest shall be applied to the sum. However, the Turkish law does not allow compound interest or any implementation may cause compound interest even the parties mutually agree by contract.
Parties of a running account contract, provided that not less than three months, may decide at any time to start adding interest to the principal amount and fix the interest and commission rate if any.
In Turkish law, as the nature of requirement of a contract for effectiveness of a running account and as result of the obligation of fixing an accounting period by law, none of the parties prior to the cessation of the current running account shall not be considered either as the creditor or the debtor the legal status of the parties is only determined after the cut off at the end of the contract period.
A running account contract seems special type of contracts since the law regulates the termination clauses very specially. Accordingly, a running account contract is terminated upon i) expiry of the agreed period, ii) notice of either party in cases where the term has not been fixed and, iii) insolvency of either party. However, there is no certain clauses with respect to the implicit or automatic renewals of the contracts in comparison between accounting period and contract terms. This seems the most crucial issue for the companies which have midterm trade relations under a running account.
Pursuant to the article 99 of the Turkish Commercial Law Contract if one of the parties dies or is restricted during the effectiveness of the contract the legal representatives of both parties and their successors may terminate the contract for the current account ten days advance notice.
The prescription period is five years for all kind of claims will be effective after termination of running account contract.