CLICK THIS TO GO TO THE MAIN PAGE ON ALL ARTICLES ON CREDIT MANAGEMENT/CREDIT CONTROL

During the credit vetting process of granting a new credit facility or additional credit amount to the customer, you might notice from the Application Form that a particular customer belongs to a group of companies. You might find that the credit standing based on all your financial and non-financial ratios on this stand-alone company might not qualify it for new or additional credit facility from your company.

So what can you do as a Credit Manager?
Attached below is a sample of a Corporate Guarantee that you might be able to use to persuade the customer to bring forth to its holding company to guarantee the amount of credit given by your company.

This Corporate Guarantee acts as a sort of “collateral”.

When the subsidiary company whom you have granted the credit facility fails in its obligations to pay, your company can then have the recourse to seek payment from the customer’s holding company which has a higher or better credit standing.

More often, nowadays, a holding company normally uses its management company or a special vehicle company (for example, a realty company for a special project) to obtain credit facilities from its suppliers.

Once this Corporate Guarantee has been signed and a Board Resolution raised, this might hopefully make them aware that your company is a bit “more special/preferential” than its other unsecured creditors.

Sample of a CORPORATE GUARANTEE

(UNDER THE LETTERHEAD OF THE CORPORATE GUARANTOR SAY XYZ GROUP)
Date
To : Name & Address of the Company giving the credit period (ABC Company)
Dear Sir,
In consideration of the extension of credit by ABC Company (hereinafter referred to “ABC”) to XYZTY ( hereinafter called the “Customer”), which extension of credit is at the request of the Guarantor, the undersigned Guarantor hereby unconditionally guarantees the payment when due of all amounts owing by Customer to ABC, to a total amount of $150,000.00, whether such amounts now be owing or may be owing in the future.
Guarantor consents to any renewal, extension, postponement, or other indulgence granted to Customer, any modification, supplement, or alteration to Customer indebtness; any substitution, release or exchange of collateral; and any release of other obligors or guarantors.
Guarantor waives notice of acceptance, notice of goods sold to Customer, and any notice of default by Customer.
The total amount payable by the Guarantor hereunder shall not exceed $150,000.00; provided however, that this shall be a continuing guarantee for said $150,000.00 regardless of amounts paid by Customer, and that ABC may extend credit to Customer for amounts in excess of $150,000.00 without affecting the obligations of the Guarantor hereunder.
This guarantee is to be valid and binding on us and is a continuing security. Notwithstanding the revocation of this Guarantee, if any, we will pay the guaranteed sum antecedent to the revocation of this Guarantee.
Yours faithfully,
XYZ GROUP
………………
Director.

If you found this post useful, keep updated with future posts by subscribing to FMAccounting (for free) through RSS or email.

Related Entries

• Samples of Documents and Agreements Used in Credit Management
• Guarantor/Guarantee
• ALL TOPICS COVERED IN HEADING-CREDIT MANAGEMENT/CREDIT CONTROL
• Short Term Financing-Bank Overdraft Facility
• A Simple Credit Evaluation Checklist