When you extend credit to a limited company, you are often relying on a business that can shut down, restructure, or simply run out of cash long before your invoice is paid. That is exactly why personal guarantees (PGs) exist and why teams like Taurus Collections regularly see them make the difference between a quick recovery and a long, expensive chase. The trick is knowing when a PG genuinely protects you, when it is just paperwork, and how to enforce it without losing momentum.
What a personal guarantee actually does
A personal guarantee is a promise from an individual (usually a director, owner, or partner) that they will pay the company’s debt if the company does not. In plain terms, it can turn a business debt into a personal liability.
That matters because late payment is not a small problem. UK Government-commissioned research estimates late payments cost the UK economy almost £11 billion per year, with over 1.5 million businesses (28%) affected and around £26 billion owed in late payments at any given time. If you’re at the stage where you need to put a firm demand in writing, it helps to follow a proven structure. Here’s a practical guide on how to write a debt collection letter you can use.
A PG is one of the tools that can stop you becoming part of those statistics, but only if it is set up properly and used at the right time.
When personal guarantees help most
1. When the company has limited assets (but the director does not)
If the debtor company is asset-light (service businesses, recruiters, agencies, many trades), a judgment against the company can be hard to enforce. A PG gives you a route to recover from the person behind the business, not just the business shell.
2. When you are onboarding a new customer or increasing credit
A PG is strongest when it is agreed upfront, before there is a problem, and before you supply goods or services. It can be a fair trade: you are willing to offer credit terms, and they are willing to stand behind payment.
3. When you are dealing with a higher-risk profile
PGs are especially useful where:
- The company is newly formed
- The credit limit is high relative to the company’s balance sheet
- There is a history of slow payment in the sector
- You are supplying bespoke work that cannot be resold easily
4. When you need leverage for a sensible settlement
Often, the mere existence of a well-drafted PG changes the conversation. It can encourage quicker negotiation, realistic payment plans, and fewer “delay tactics” when the debtor realises you can pursue them personally.
When personal guarantees don’t help (or can backfire)
1. When the guarantor cannot pay
A PG is only as strong as the guarantor’s finances. If the individual has minimal assets, heavy personal debt, or is close to insolvency, the guarantee may look good on paper but deliver little in practice.
It is also worth remembering that financial pressure is real. In 2025 there were 23,938 registered company insolvencies across the UK (annual total), so you are not dealing with rare edge-cases here.
2. When the guarantee is badly drafted or poorly executed
Common problems include:
- The wrong person signs (or signs without authority)
- The guarantee is not clear about what debts it covers
- It is not signed correctly (especially if intended as a deed)
- Key terms are missing (like whether it is continuing, capped, or joint and several)
If you ever hear “I didn’t understand what I was signing” or “that was for a different agreement”, you can end up spending time and legal fees arguing about enforceability instead of collecting.
3. When you take it too late
If you only ask for a PG after invoices are overdue, the director is already under stress and is far less likely to sign. Even if they do, you risk arguments about pressure or unfairness. The best time to secure a PG is when you are agreeing terms, not when you are chasing.
4. When you rely on it instead of managing credit
A PG is a safety net, not a credit policy. If your invoicing is messy, your scope is unclear, or your statements of account are inconsistent, you will still face disputes and delays. A guarantee does not fix poor paperwork.
How to set up a PG so it actually works
You do not need legal jargon, but you do need discipline. As a baseline, make sure your PG is:
- In writing and clearly linked to the credit agreement or trading terms
- Specific about what it covers (all invoices, a specific contract, interest, recovery costs)
- Clear on the cap (for example, “up to £25,000 plus interest and costs”) if you want certainty
- Signed correctly, with the right name, address, and capacity
- Consistent with your terms and conditions (no contradictions)
Deed vs standard contract: why it matters
In England and Wales, limitation periods are commonly 6 years for a simple contract and 12 years for a deed. If your guarantee is executed as a deed, it can give you longer to bring a claim, which can be important where debts drag on or come to light late.
(You should still act fast. A longer limitation period is not a reason to wait.)
How to enforce a personal guarantee (a practical step-by-step)
Step 1: Check the trigger and the paperwork
Before you fire off threats, confirm:
- The company has breached the payment terms
- The invoices are correct and undisputed (or you have evidence to rebut any dispute)
- The PG wording covers the debt you are claiming
- You can evidence supply, acceptance, and the amount outstanding
Step 2: Make a formal demand
A proper demand should:
- State the amount due (for example, £9,840.50)
- Attach a statement of account and the relevant invoices
- Refer to the PG and the clause that makes the guarantor liable
- Set a short but reasonable deadline to pay (often 7–14 days)
Keep it calm. You are not trying to “win an argument”. You are trying to get paid.
Step 3: Offer a controlled settlement route
If the guarantor engages, you can consider:
- A realistic payment plan (with dates, amounts, and consequences for default)
- A reduced settlement for quick payment (only if it makes commercial sense)
- Written confirmation that payments are made under the PG and not “without liability”
Step 4: Escalate to legal action if needed
If they ignore you, your next step is usually a Letter Before Action and then a court claim. The right venue depends on value and complexity (for example, County Court for many claims).
If the PG is clear and the debt is properly evidenced, these cases can be more straightforward than chasing an empty limited company.
Step 5: Enforce the judgment against the individual
If you obtain judgment and they still do not pay, enforcement options can include:
- Enforcement agents (warrant or writ, depending on the route)
- Third party debt orders
- Charging orders (where appropriate)
- Bankruptcy proceedings in suitable cases
For individuals, a creditor bankruptcy petition typically requires the debt to be at least £5,000. The point is not to “go nuclear”, but to use the right escalation at the right time to stop the debt from aging into a write-off.
The mindset that makes PGs work
A personal guarantee is most effective when you treat it like part of your credit process, not an emergency tool:
- You ask for it early (onboarding or credit increases)
- You verify who is signing and what you are agreeing
- You keep your invoicing and delivery evidence tight
- You escalate quickly when payment slips
Late payment already costs UK businesses billions and burns huge amounts of time. Your goal is to shorten the cycle and control the outcome.
Next steps
If you have a personal guarantee in place but the debtor is still dragging their feet, or you are unsure whether your PG is enforceable, Taurus Collections can help you pressure-test the paperwork, choose the right escalation path, and recover what you are owed faster.