Monday Morning Meeting: The Power Of A Personal Guarantee
Today Wilson Cole, President of Adams, Evens, & Ross (AER) and Samantha Cole, in-house counsel for AER, are talking about personal guarantees.
To begin with, trying to get an HR manager to sign a personal guarantee is probably a waste of time because it will likely have no weight (especially if the HR manager gets a different job).
A personal guarantee is a form that states something to the effect of "if the business fails or fails to pay, the staffing agency can go after the signee personally." A personal guarantee can be part of a larger standard contract or a separate/special contract. Either way, personal guarantees are most effective when the signee is an owner/officer of the company, because as mentioned before, HR managers change jobs all the time. It is very important to get a signed personal guarantee if you are liable for the payroll of your candidates, however, because if the client company refuses to pay, you are in big trouble. And even though staffing agencies think time and time again this won't happen to them, the statistics tell a different story and are undeniable. 80% of businesses will fail within the first 3 years and then 80% of the surviving companies will fail within the first 5 years (and failed businesses generally don't pay their bills).
The more money in play (in the form of hours worked by a staffing agency's placements or fees owed in general), the more risk a staffing agency can mitigate by getting a personal guarantee. Personal guarantees are helpful not only when filing suit, but even during the collection process prior to that point, where it can be used as leverage to bring the company back the negotiating table to reach a resolution (and prevent the need to file a lawsuit at all).
If a company or owner of a company refuses to sign a personal guarantee because they are not confident they will be able to pay their bills, knowing this, an important question staffing agencies should ask is why should it be confident the company will pay? On a final note, be wary of people who sign personal guarantees but insist on including their titles on the document. Some legal jurisdictions will see that title and let the debtor off the hook because they were acting in an official capacity. To follow up with Samantha about personal guarantee templates, you can email her at Samantha@aercollections.com.
2 Key Quotes
A personal guarantee is a form that states something to the effect of "if the business fails or fails to pay, the staffing agency can go after the signee personally." A personal guarantee can be part of a larger standard contract or a separate/special contract.
The more money in play (in the form of hours worked by a staffing agency's placements or fees owed in general), the more risk a staffing agency can mitigate by getting a personal guarantee.