Personal Guarantees

“My solicitor said not to sign it”.

Many credit applications and agreements have an option for a personal guarantee. Unfortunately sometimes requiring a personal guarantee can result in some conflict with a potentially good customer particularly if they have spoken with a solicitor about this.

As a Credit Manager other questions in relation to the guarantee will now arise.

• What is the policy of the company in relation to guarantee requirements?
• Do I need the guarantee?
• How much pressure can I place on the potential customer to sign it?

These simple questions could be answered many different ways by different companies. It really comes down to you and having clear direction through the company policy. Unfortunately when a Solicitor becomes involved in advising his client the obvious thing for him to say is “don’t sign it”.

This causes a problem for both parties as one wants the goods and wants to do business while the other party is charged with protecting their business and enforcing the company’s credit policy in regard to this issue.

The result is that both parties may not be able to agree due to the advise given by the solicitor who is not financially effected by any decision he or she makes for their client.

I am sure that the in most instances the Solicitor would not finance the business for the client yet he is advising his client on what basis goods should be obtained from suppliers. If the guarantee is not signed the applicant’s business could suffer considerably by not having the raw materials it needs while trying to negotiate the opening of those credit facilities.

It never ceases to amaze us how many intelligent business people make the statement “my solicitor said not to sign” and then either pay more for product or not have it at all. Don’t forget the solicitor gets paid for his advise. Ironic isn’t it when they have no financial interest. Perhaps the Solicitor may come forward and sign it for his customer, I don’t think so.

If the credit — applicant is confident of their business being able to pay its debts as they fall due signing a guarantee should not be a problem. After all who owns and developed the business to start with, certainly not the solicitor. Recovery on a personal guarantee is generally the last resort in trying to resolve an outstanding account.