The Six-Year Clock

Most aging reports tell you how old an invoice is. Almost none tell you how long you have left.

That second number is the one that matters. In Peninsular Malaysia, an action founded on a contract (an unpaid trade invoice included) generally cannot be brought more than six years after the cause of action accrued. That’s section 6(1)(a) of the Limitation Act 1953. Every receivable on your books has a clock on it, and most businesses don’t look at it until a lawyer does.

What actually happens at six years

People say the debt “expires”. Not quite. The Act bars the action, not the debt, and only if the debtor raises it: section 4 says the Act doesn’t bar a claim unless it is expressly pleaded as a defence. A voluntary payment of a time-barred debt is still a valid payment, and a signed written promise to pay one is an enforceable contract (Contracts Act 1950, s.26(c)).

In practice that’s cold comfort. Any competent lawyer will plead it. Treat the date as the day your leverage ends.

Two cautions on the date itself. The courts haven’t clearly settled whether time runs from delivery, the invoice date or the end of the credit term, so count from the earliest. And the Act applies to Peninsular Malaysia only. Sabah and Sarawak have their own limitation ordinances, under which a claim for the price of goods sold and delivered is generally limited to three years, not six.

What restarts the clock, and what doesn’t

For a debt, the clock starts again when the customer acknowledges it or makes a payment in respect of it (s.26(2)). The conditions are specific (s.27):

• An acknowledgment must be in writing, signed by the customer or their agent, and made to you or your agent.
• A part payment doesn’t need to be in writing, but it must be made to you or your agent.

The writing doesn’t have to be formal. The Federal Court has accepted a debtor’s SMS reply to a demand as a valid acknowledgment, with the sender’s phone number serving as the signature (Yam Kong Seng v Yee Weng Kai [2014] 4 MLJ 478).

What doesn’t restart it is everything you do on your own side. Reminders, letters of demand, meetings and friendly follow-up calls don’t count: the Act looks for an acknowledgment or payment from the person who owes the money. Months of polite chasing can quietly run the clock down to nothing.

Don’t plan on reviving a debt after the deadline, either. Whether a late acknowledgment works in Peninsular Malaysia is unsettled, and in Sabah and Sarawak it only counts if it’s made before time runs out.

Why the date works

In credit work, a risk score gets a nod. A date gets a decision.

“This account has a 12% chance of default” is abstract, and people discount it. “This invoice becomes unrecoverable in court in eleven months” is an event on a calendar. That fits the research. People think about distant events in the abstract and near ones concretely (Trope & Liberman, 2010). Vivid outcomes crowd out probabilities (Sunstein, 2002). Tight deadlines get acted on where generous ones get put off (Shu & Gneezy, 2010). None of it proves a deadline beats a score in collections specifically, but it matches what I see across the table.

What to do with it

• Add a “time left” column to the aging report, counted from the earliest plausible start date.
• Get a signed acknowledgment on any account that has sat for more than a year: a statement of account the customer signs and returns to you, or a written reply confirming the balance. In Sabah and Sarawak, a year is already a third of the window.
• Record every part payment, with the date it reached you.
• Lead with the date once an account is inside its last year, not with the score.

Six years is generous. The problem is that nobody is counting.

General information, not legal advice. Limitation turns on the facts and the contract, so check the dates with a lawyer before relying on them.

Sources

• Limitation Act 1953 (Act 254), ss. 1(2), 4, 6(1)(a), 26(2), 27. Attorney General’s Chambers, text as at 1 September 2019.
• Contracts Act 1950 (Act 136), s.26(c).
• Sabah Limitation Ordinance (Cap. 72) and Sarawak Limitation Ordinance (Cap. 49), Schedule: price of goods sold and delivered.
• Yam Kong Seng & Anor v Yee Weng Kai [2014] 4 MLJ 478 (Federal Court).
• Trope, Y. & Liberman, N. (2010). Construal-level theory of psychological distance. Psychological Review, 117(2), 440–463.
• Sunstein, C. R. (2002). Probability neglect: Emotions, worst cases, and law. Yale Law Journal, 112, 61.
• Shu, S. B. & Gneezy, A. (2010). Procrastination of enjoyable experiences. Journal of Marketing Research, 47(5), 933–944.