In the UK, a guarantor is someone who agrees to repay a debt if the original borrower fails to do so. For example, a director may personally guarantee a company loan, making them liable if the business defaults.
Guarantors are essential to many credit agreements, particularly in commercial lending. However, recovering money from them can be complex, requiring a clear understanding of legal obligations and the correct steps to take.
This article offers a practical overview for businesses chasing payment from guarantors, outlining the different types of guarantors, when to pursue them, and the best practices under British debt collection laws.
4 Types of Guarantors
Guarantors come in different forms, each with specific roles and responsibilities under UK law. Knowing these types helps businesses identify who may be held liable when pursuing unpaid debts:
- Personal Guarantor – An individual, often a company director or business owner, who agrees to cover the debt if the borrower defaults. It is common in SME lending and commercial lease agreements.
- Corporate Guarantor – A company or legal entity that guarantees another business’s obligations. Corporate guarantors often occurs within group structures where a parent company backs a subsidiary’s credit.
- Limited Guarantor – Someone who only guarantees part of the debt or is liable under specific conditions. The extent of liability depends on the wording of the guarantee agreement.
- Joint and Several Guarantor – One of multiple guarantors who can each be held responsible for the full debt. Creditors may pursue any or all parties for repayment.
Each type carries unique legal implications when chasing payment from guarantors.
Chasing Payment from Guarantors: When’s the right time to do it?
Knowing when to start chasing payment from guarantors is key to successful debt recovery. In the UK, the timing depends on the terms of the guarantee, the behaviour of the borrower, and the nature of the default.
Below are common points at which firms may consider taking action:
After the Borrower Defaults
Once the borrower misses payments or breaches the agreement, businesses can review the guarantee terms to see if the guarantor’s obligation has been triggered. Most guarantees are structured to activate as soon as the borrower fails to pay.
When Communication Fails
If repeated attempts to contact the borrower go unanswered or they refuse to cooperate, it may be time to approach the guarantor. At this stage, businesses can send a formal demand to the guarantor, referencing the original agreement and outlining the debt.
Before Legal Action
Before pursuing court proceedings, many creditors reach out to guarantors as a final step. This gives the guarantor a chance to settle the debt voluntarily, which can save time and legal costs.
If the Borrower Enters Insolvency
If the borrower becomes insolvent or enters administration, the guarantor often becomes the only viable route for recovery. Prompt action is critical to avoid delays and preserve the right to claim.
Chasing Payment from Guarantors: 5 Best Practices
Chasing payment from guarantors requires a strategic approach that aligns with UK legal standards. Companies can improve their chances of recovery by following best practices designed to support valid claims and minimise delays:
1. Review the Guarantee Agreement
Start by examining the signed guarantee. It should clearly outline the guarantor’s obligations, limits of liability, and any conditions that must be met before a claim can be made. Pay close attention to any formal notice requirements or time restrictions.
2. Act Promptly
Delays can weaken a claim or even cause it to lapse. Under the Limitation Act 1980, creditors generally have six years from the date of default to bring a claim. Acting quickly demonstrates seriousness and reduces the risk of recovery being challenged on technical grounds.
3. Keep Detailed Records
Maintain clear records of all communications, agreements, payments, and defaults. These documents support your claim and may be required if the case proceeds to court or if the guarantor disputes liability.
4. Send a Formal Demand Letter
A well-drafted demand letter sets out the debt, refers to the guarantee, and gives the guarantor a chance to respond or settle. This step often prompts payment without legal action.
5. Seek Legal Advice Early
Consulting a solicitor early can help avoid missteps. Legal advice is especially valuable when the guarantee terms are complex or the guarantor is likely to contest the claim.
Get Expert Help with Chasing Payment from Guarantors
Slater Byrne Recoveries UK helps businesses efficiently and lawfully recover debts. Facing unpaid guarantees? Book your free consultation today. We’ll guide you through the process and protect your cash flow.
