​I frequently receive calls from Clients about a ‘cannot miss’ collection they need me to handle. Usually the claim is against a Company and the Client informs me they have a Personal Guarantee.

They want me to immediately report the debtor to the Credit Bureaus to negatively affect the FICO Score. They want me to litigate and attach the Signer’s property. They expect to be paid in full. Sometimes, because this collection will be so easy, they ask for a discount.

I look over their documentation and, before calling them back; I take a few minutes to consider how I will deliver the news which is usually bad. Their initial reaction is shock and anger, often directed toward me about my failure to see the obvious connections. Most of the time, they made the mistake of assuming that a signature standing along and not followed by a corporate title is personal.

In most of these cases it isn’t. Here is what you need to know so your assumed Personal Guarantee becomes a real Personal Guarantee.

If your contract is with a company it is only that company that is on the hook for your bills. Even if the President signs a ‘Personal’ signature the fact that the contract is only with the company indicates he is signing in a corporate capacity. Even if a General Contractor signs ‘Personally’ on a contract made out to a company, the contractor cannot be held liable for the debt.

By now, you may have figured out that a debt based on a contract made out to a company can only be collected against that company. So, how do you make an individual personally responsible?

Here’s the good news. There is a way you can sue the signer, affect their FICO Score, attach their assets and get paid. You simply need to create a Personal Guarantee and either attach it to the contract with a separate signature or present the signer with the Guarantee as a separate document.

Make the Guarantee contract extremely personal. Include the signer’s full legal name, social security number and current address. Check to make sure the information is accurate. BE SURE TO SHOW THE GUARANTEE CONTRACT TO YOUR ATTORNEY!

Then, have the Guarantor sign a statement that is simple and to the point. For example, ‘I, (Signer Name), agree to pay in full any payments not paid by (Company Name) in according to the terms and conditions of the contract # (XXXX) attached, even if the documentation is specifically exclusive between (Company) and (Me).

Have the signer sign the statement and date it. Mark under the signature line ‘Personal Guarantee’.

If your prospective customer refuses to sign this guarantee and your research has determined the company is financially questionable, you have a decision to make. Since 80% of all new companies fold within 2 years and 90% disappear within 5 years, be careful.

If you decide to proceed without a signature, don’t tell me later you have a Personal Guarantee.

Understanding debt collection and background screening best practices can save your business big money. Building up front applicant screening into your business processes costs you very little, but saves you so much in the end. If you haven’t already, partner with a full service debt collection and applicant screening company to guide your business to a place of security and prosperity. Contact us to sign up for a free account and get started protecting your business today.

ABOUT EXECUTIVE CREDIT MANAGEMENT, INC.

Executive Credit Management is a full-service Debt Collection and Applicant Screening agency with over 20 years experience located in Central New Jersey. We provide excellent service in the following areas: Employment Screening, Business Screening, and Tenant Screening. Executive Credit Management belongs to a number of Skip Tracing databases and offers services to help locate and confirm the current address of missing debtors. Other services provided are: litigation evaluation on all lawsuit decisions, improvement of the quality of the applicant data, Lawsuit Monitoring, Handling of Debtor Disputes. Executive Credit Management features the best Call Monitoring System in the Debt Collection industry.