Are you still having difficulties with limited companies not paying their debts to you?!  How about a sneaky tip to circumvent the corporate veil and make a company’s directors personally liable to pay the debt?!  I'm good to you, I really am.......

So, a big new client has landed in your lap. Not literally as that might break the chair but somehow they find their way into your working life.  However, they want credit terms which, as with any credit deal, puts your company at risk.  You could simply sign it off and keep your fingers crossed that they are good for the money but you are good at what you do and alarm bells are ringing in your head somewhere that this company might end up on your bad debt ledger.  At this early stage, there is still time for you to seek an extra layer of protection to avoid fighting for your money at a later date.

An excellent form of protection, the use of which is becoming more and more commonplace, is the Director’s Personal Guarantee (PG). That’s right, get the guy who is promising to send you loads of business and pay his credit terms on time to put his signature where his mouth is.  In basic terms, the Personal Guarantee will say that the Director promises to pay you from his personal fortune should his company neglect to do so. 

If you are going to use Personal Guarantees, do it properly or it might not be worth the paper it is written on. The best practice is to put the Personal Guarantee in the form of a witnessed deed and state clearly that you can rely on it to collect all debt that the business has not paid.  Getting the Director to scrawl the guarantee on the back of a cigarette packet or send you a quick email might not be enough if it comes to arguing about it in Court.   

It is very important to check that the Personal Guarantee has been completed properly before giving away loads of credit. Be sure that the Director has not given his name as ‘Michael Mouse’ and check that it has actually been signed.  It is too late if you notice a problem like this if you ever have to sue the Director.    

Another important aspect to be aware of if you are using adjustable credit limits is to make sure the PG covers all debt and make sure that all Directors who have signed a PG are made aware of all increases to the limit.   

It really should not be too much work for your sales people to get these completed by directors and, in any event, a PG can often be worth the extra time/paperwork investment because it can help you avoid litigating with a debt-ridden company.   

If a Director refuses to sign then maybe he knows something about his business that he does not want you to know. At that point, it might be worth reconsidering whether this is a credit-worthy customer.