When a business provides credit to its customers a credit contract is very important in recovering outstanding money.

A non consumer credit contract is one where the debtor is receiving credit primarily for investment purposes.  Investment purposes apply where Investment by the debtor is not for a personal, domestic or household purpose.

If you provide credit to companies, one way of protecting your money is to require a personal guarantee in your credit contract.

A guarantor could be any one of a number of people who are willing to guarantee the debtor company’s obligations under the credit contract i.e. the Directors of the debtor company, their spouses, parents, friends etc.

In order to ensure your non consumer credit contract guarantees are effective you must take the following steps:

Execution Requirements:

• Make sure your guarantee provision is in writing and signed by all guarantors.
• Make sure your guarantee provision is clear and unambiguous.  All guarantors signing guarantees must understand that in signing the guarantee they may be held personally liable for the performance of the debtor company’s obligations under the credit contract.

In addition to the requirements mentioned above there are also a number of other things you can do to protect yourself further:

• Store your credit contracts and guarantees in a safe place so they are easily accessible.
• At the time of execution get full details i.e. names, dates of birth, residential addresses and telephone numbers.  This will aid in contacting the guarantor when and if it becomes necessary.
• When you lend credit to a business that has multiple owners make sure you get a guarantee from each of them.  One may not have personal assets to back up the guarantee but another might.
• When you lend credit to a family business get a guarantee from both the husband and wife.  This will prevent assets being passed to one or other spouse to defeat the guarantee.

Remember failure to properly execute guarantees can increase the costs associated with recovering outstanding money and decrease your chances of bringing a successful recovery claim.