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Using a Personal Guaranty for Business Collections
Business Collections can be a tricky business. When an account is past due or a credit limit exceeded, the natural inclination is to cease shipping supplies until the account is brought current or put the customer on COD for future invoices. While this method keeps your business from getting deeper in the hole, it may not result in getting the overdue bills paid. If your company is the primary supplier of goods for a concern, then shutting off the pipeline means it can’t produce new goods to sell and generate the income necessary to satisfy its debts.
These situations are common and often require expert legal advice to work out a reasonable system to allow your customer to continue while protecting your own interests. One method is to get personal guarantees from the owners of the company. When it’s their own credit, house and car on the line, they will be more inclined to make good on the debts of their company. Owners will be reluctant to open themselves up to liability which is why an attorney needs to get involved. The guaranty needs to be airtight and clear on the circumstances in which the principals are liable for corporate debts.
In addition to securing personal guarantees, a commercial collection attorney can draft documents to assign the debtor’s accounts receivable. This procedure is known as factoring and is a popular means to insure suppliers are paid. It too allows the relationship to continue but keeps the balance sheet from getting further into the red.
If you have some sticky accounts that require a more seasoned approach than a threatening letter, then contact us for an assessment. We specialize in not just collecting debts but in making arrangements to preserve valuable accounts.