When a business extends credit, a guarantor provides added security by agreeing to pay the debt if the customer defaults. In Australia, guarantors are often directors or individuals connected to the debtor company. These guarantees give businesses a legal fallback when recovering unpaid accounts.
For a guarantee to be enforceable under Australian law, it must be in writing and signed by the guarantor. Verbal agreements won’t hold up in court, and unsigned guarantees carry little weight.
Common types of guarantees include director guarantees, where company directors back business debts, and personal guarantees, where individuals take on financial liability. These are standard tools in commercial credit but can be tricky to pursue if not handled correctly.
This article serves as your quick guide in chasing payment from guarantors. Whether you’re dealing with overdue invoices or planning to tighten your credit processes, this guide is tailored for Australian businesses.
When Can You Start Chasing Payment from Guarantors?
Before pursuing a guarantor for unpaid debt, you need to meet certain legal and practical conditions. In Australia, chasing payment from guarantors is only effective if the right steps are taken in the correct order. Here’s when you can take action.
1. The Principal Debtor Has Defaulted
You can’t demand payment from a guarantor until the primary borrower has failed to pay. A default typically occurs when an invoice is overdue or the debtor breaches the terms of the agreement. It’s important to have clear documentation showing the default, such as overdue notices, final demands, and a statement of account.
2. A Valid Guarantee Is in Place
You must have a written and signed guarantee before chasing a guarantor. Under Australian law, verbal promises are not enforceable in court. Check that the document is signed by the guarantor and clearly states their obligations. If this paperwork is incomplete or unclear, it may be difficult to pursue legal action.
3. Time Limits Have Not Expired
Debt recovery in Australia is subject to limitation periods. In most states and territories, you have six years from the date of default to start legal proceedings against a guarantor. Waiting too long could mean losing the right to recover the debt altogether.
4. The Debt Is Not Disputed
If the debtor is disputing the amount or validity of the debt, it’s best to resolve that issue first. A guarantor may not be liable until the dispute is settled or decided by a court.
Common Mistakes Businesses Make When Chasing Payment from Guarantors
Chasing payment from guarantors can be a powerful tool for recovering overdue debts, but many firms make costly errors during the process. These common mistakes can delay recovery, damage relationships, or even make the guarantee unenforceable.
Here’s what to watch out for:
1. Relying on an Invalid or Incomplete Guarantee
One of the most common mistakes is attempting to pursue a guarantor without a legally binding document. In Australia, a guarantee must be in writing and signed by the guarantor to be enforceable.
Missing signatures, vague terms, or informal agreements won’t hold up in court. Always verify that the guarantee clearly outlines the guarantor’s liability.
2. Waiting Too Long to Act
Debt collection is time-sensitive. Businesses often delay chasing payment from guarantors, which can result in exceeding the statutory limitation period. Most states in Australia allow six years from the date of default to take legal action. After that, your right to recover the debt could be lost.
3. Overlooking Proper Documentation
Failing to keep accurate records of the original debt, communication with the debtor, and attempts to collect can weaken your case. Guarantors have the right to request evidence of the debt. Without clear documentation, your claim may be challenged or dismissed.
4. Using Aggressive or Unlawful Collection Methods
Approaching a guarantor with threats or harassment can breach the ACCC and ASIC Debt Collection Guidelines. This may expose your business to legal action or regulatory scrutiny. All communication must remain respectful and professional.
5. Ignoring Disputes or Warning Signs
If the guarantor raises a legitimate dispute or claim of misleading conduct, ignoring it can damage your legal position. These issues should be addressed quickly, ideally with legal advice, before proceeding further.
Need Help Chasing Payment from Guarantors?
At Slater Byrne Recoveries AU, we understand how frustrating it can be to chase payment from guarantors who won’t respond. That’s where we step in. We’ve helped businesses across Australia recover debts backed by personal and director guarantees—quickly, legally, and with minimal hassle. If you’re serious about getting paid, let us handle the hard work.
Book your free consultation with our specialists today!
