Set up personal guarantees

When to run this

Run this play when a client extends credit to companies — particularly small proprietary companies — without any personal commitment from the people behind them. A company is a separate legal person with limited liability, which means that if it fails owing money, the directors are generally not personally responsible for the debt. A personal guarantee is how a supplier asks a director to stand behind the company's account.

This conversation belongs at onboarding, alongside the credit application, because asking for a guarantee after an account has gone bad is far harder and far less likely to succeed.

The play (steps)

Help the client make guarantees a normal, structured part of granting company credit — while keeping the drafting with a lawyer:

1. Identify the targets. Focus on company customers, especially newer or smaller entities where the company itself has limited assets.
2. Bundle it with the credit application. Include a guarantee section in the credit application so it is signed at the outset as a condition of credit, not bolted on later.
3. Capture the right people. Ensure the guarantee is given by the individuals who actually stand behind the business.
4. Get the documents right. Personal guarantees have formal requirements; have them drafted and executed under legal guidance so they are enforceable.
5. Keep the records. Store the signed guarantee with the account so it can be located instantly if the debt is ever referred.

What good looks like

For company accounts that warrant it, the business holds a properly drafted, properly signed personal guarantee captured at onboarding and filed where it can be found. If the company later fails, the client is not limited to chasing an empty shell — there is a named individual who has agreed to be responsible. That single document can be the difference between a write-off and a recovery, and it costs almost nothing to obtain at the right moment.

What to say to the client

Explain the limited-liability gap plainly: “When you supply a company, you're supplying a structure that can be wound up, leaving you with no one to pursue. A personal guarantee means the director is agreeing to pay if the company can't. It's a completely normal condition of credit, and the best time to ask is now — not after the company has stopped answering the phone.”

If you are setting up guarantees for the future and the client already has unpaid company accounts, you can route those to refer a debt so they are pursued while the prevention work is put in place.

Common mistakes

The first mistake is never asking, on the assumption that customers will refuse — in practice, a guarantee requested as a standard condition of credit is often signed without fuss. The second is taking a guarantee that is poorly drafted or improperly executed, so it does not hold up when tested. The third is filing it somewhere it can never be found, which is no better than not having it. Because enforceability turns on getting the document right, drafting belongs with a lawyer.