Personal guarantees in B2B credit: how to use, document, and enforce them Part 1

Part one explains when personal guarantees (PGs) make commercial sense and how to deploy them without scaring off good customers. Part two gives you a drafting checklist so your guarantee actually bites when needed. Part three shows how to enforce a PG proportionately—starting with negotiation and only moving to legal action if required. 

Part one: when a personal guarantee makes sense

What a personal guarantee is (and isn’t)

A personal guarantee is a promise by an individual—usually a director, owner or major shareholder—to pay a company’s debt if the company doesn’t. It’s a secondary obligation (you pursue the company first), but most modern documents combine a guarantee and indemnity so the guarantor is also directly liable for losses if the underlying obligation is unenforceable or varies. PGs are common in trade credit, equipment rental, construction and wholesale distribution.

When to ask for one

Request a PG when risk indicators point to elevated exposure:

• Newco or thinly capitalised customers asking for large limits or long terms
• Adverse credit signals (missed filings, CCJs, frequent director changes)
• High concentration risk (single large customer)
• Sectors with volatile cash flow or long order-to-cash cycles

A PG is not a substitute for basics. You still need disciplined chasing unpaid invoices, robust onboarding and clear terms. If day-to-day controls slip, even the best security won’t rescue DSO.

Commercial positioning that keeps sales onside

PGs can be framed as credit enablers, not barriers. Consider:

• Capped guarantees (e.g., up to £50,000 plus costs/interest)
• Time-limited PGs (e.g., 12–24 months) with review rights
• Trigger-based PGs (required only above a credit limit or on special orders)
• Multiple guarantors (joint and several liability from two directors)

Couple your PG policy with strong pre-invoice hygiene and commercial debt collection tips so customers see a professional, consistent process rather than a last-minute demand.

Ethics and relationship management

Using PGs must be compatible with your values and brand. Directors are people: illness, bereavement and temporary cash-flow shocks happen. A professional, ethical debt collection stance (clear explanations, proportionate action, signposting to options) increases cooperation and lowers dispute rates.

Alternatives to a PG

Sometimes a PG is overkill. Consider:

• Deposit or retention against high-risk orders
• Stage payments or shorter terms
• Credit insurance or trade credit guarantees
• Director’s loan subordination undertakings
• Specific security (e.g., title retention, return-of-goods clauses)

If payment behaviour still deteriorates, follow a structured ladder from reminders and debt collection calls to formal notices, then—only if necessary—escalate an invoice to debt collection services.

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