Requesting a Director's Guarantee
A personal guarantee gives you recourse to an individual when the company you supplied cannot pay — but only if it is sought and signed correctly.
What you'll learn
- Why limited liability makes guarantees worth considering
- When a guarantee is and isn't appropriate to request
- What makes a guarantee enforceable in practice
- How to ask for one without souring the relationship
7 min read
Why guarantees exist
When you trade with a 'Pty Ltd' company, limited liability means your claim is against the company, not the people who run it. If the company collapses with no assets, an unsecured supplier can be left with nothing. A director's guarantee bridges that gap: the director personally promises to pay if the company does not, giving you recourse to an individual and their assets.
For directors of solid businesses, signing a guarantee is routine — they are confident the company will pay. For directors who resist strongly, the reluctance itself can be informative. Either way, a guarantee converts an unsecured company debt into one backed by a person, which materially improves your position if things go wrong.
When to ask — and when not to
Guarantees are most justified where exposure is high or risk is uncertain: large credit limits, newly formed companies with no track record, thinly capitalised entities, or customers in volatile sectors. They are also sensible for shelf companies or '$2 companies' that may have few assets of their own.
You need not demand a guarantee from every customer. A long-established, well-capitalised company paying cleanly may reasonably trade unsecured. Reserve guarantees for accounts where the company alone does not give you enough comfort, so the request lands as proportionate risk management rather than an insult. This is general information, not legal advice.
Making it enforceable
A guarantee is only useful if it holds up. In practice that means it should be in writing, clearly identify the guarantor and the debts covered, and be properly signed — typically with a witness. The guarantor should have a genuine opportunity to read it, and many businesses recommend the guarantor obtain their own advice before signing.
Capture the guarantee as part of the signed credit application so it is agreed up front, not bolted on after a dispute. Because enforceability turns on getting the documentation right, this is an area where professional drafting pays off — and where you should treat this lesson as general information, not legal advice.
Asking without friction
Frame the request as standard policy, not personal mistrust: "our credit terms above this limit include a director's guarantee" is easier to accept than singling someone out. Build it into the application form so every higher-value customer meets the same requirement.
If a director flatly refuses and the account is high-risk, you still have options — a lower unsecured limit, a deposit, or shorter terms. And if a guaranteed account later defaults, the guarantee gives Merion a clear path to recover from the individual, compliantly and commission-only. To discuss structuring terms before you extend credit, contact us.
Key takeaways
- A director's guarantee gives you recourse to a person when a company cannot pay.
- Reserve guarantees for high-value, new, or thinly capitalised customers.
- Enforceability depends on correct, witnessed, signed documentation.
- Frame the request as standard policy to avoid souring the relationship.
Frequently asked questions
Should I ask every company customer for a guarantee?
No — reserve them for higher-risk or higher-value accounts so the request stays proportionate.
Is a verbal promise from a director worth anything?
Very little — a guarantee should be in writing, properly signed and witnessed, to be relied upon.
What if the director refuses to sign?
Offer a lower unsecured limit, a deposit, or shorter terms instead, and weigh the refusal as a risk signal.
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