Muller Law Firm Discusses When to Insist on a Personal Guaranty

A personal guaranty of payment can help decrease a creditor's risk.

BIRMINGHAM, Mich. - Michimich -- Are your customers asking for an extension of credit?

Are they less than trustworthy?

In the credit industry, when an applicant asks for an extension of credit that isn't justified based on their net worth, rejection is imminent. One way to extend credit to applicants who fall into this category is to request that the customer obtain a guaranty of payment from either a person or another company. You can incorporate a guaranty into your credit application, or it may be a separate document.

Guaranties come in two forms: guaranty of payment and guaranty of collection or performance. With a guaranty of payment, you can collect payment from the guarantor without first trying to collect from the primary debtor.

With a guaranty of collection or performance, you must first attempt (and fail) to collect from the primary debtor before you can collect from the guarantor.

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You always want a guaranty of payment to collect as quickly as possible.

When considering extending credit based on a guaranty:
  • Confirm that the guarantor is creditworthy. To ensure that the guarantor is financially sound, you can informally rely on business reputation, the impressions of the salesperson on the account, or information someone else within your company who is familiar with the general financial condition of the proposed guarantor. A more sophisticated approach is to get a credit report for the proposed guarantor.
  • If the guarantor is a corporation, require a resolution from the board of directors authorizing the individual to sign the guaranty.
  • If the guarantor is an individual and you can do so while following the constraints of the Equal Credit Opportunity Act, have the guarantor's spouse sign the guaranty so that you can collect action against joint assets.
When you obtain a guaranty, remember to build up your customer's credit file. Your notes and documents related to orders and payments will be of enormous assistance if the account becomes delinquent and you seek payment from the guarantor.

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Looking for other ways to collect?

Muller Law Firm will handle your case with the professional attention it deserves!

Contact ( one of the best collection companies in Michigan ( today at (248)645-2440 for an immediate resolution to your collection matters.

Mike Muller

Source: Muller, Muller, Richmond, & Harms, P.C.
Filed Under: Legal

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