by Scott W. Lee, JD, CCE, NACM Business Credit Services
This is a topic I promote on a regular basis. Why? We receive collection matters on a regular basis for businesses that have ceased doing business and there are no assets worth pursuing. The creditor is not supposed to be happy when payment is not received. But it is you, the creditor, that is in the best position to set yourself up to get payment. Signed credit applications, contracts and engagement letters are good things and I encourage you to get them from your customers. I also encourage you to understand the form in which your customer does business.
If your customer does business as a corporation, a limited liability company (LC, LLC) or other form of entity with limited liability, then you may only look to the company for payment when things go bad. That is unless you have a signed writing stating somebody else or some other entity will be responsible for paying your customer’s bill if your customer doesn’t. We refer to this signed writing as a personal guarantee or corporate guarantee. Corporate guarantees work similarly to personal guarantees except that the issuing entity should execute a resolution giving the entity the authority to make the guarantee. So as we talk about guarantees, the concepts apply to both personal and corporate guarantees. If I use the term person, it includes entities. (Also, don’t exclude other types of entities just because we called them “corporate” guarantees.) And remember, you can have multiple guarantors on one account.
An often overlooked item in guarantees is whether the guarantor has the ability and willingness to pay. View full article at http://tinyurl.com/3w8vqjn