Should you sign a director's guarantee for a supplier?
Only once you know how much it covers and when it ends. A director guarantee in a supplier's credit application makes you personally liable for the company's account if the company can't pay. Before you sign, ask for three changes: a dollar cap, a time limit, and a written release when you leave the company.
If the supplier won't move on any of them, you're weighing the trade account against what you're putting at risk. Here's how to read the guarantee, what the numbers can look like, and the wording to ask for.
What a director guarantee in a credit application does
A trade credit application looks like admin. Company name, ABN, three trade referees, a signature. Near the end there's often a second signature block, headed "Guarantor" or "Director's guarantee".
That block is a separate promise. The company is the customer. You, as a person, promise to pay what the company owes if it doesn't.
Suppliers are told to ask for it. The WA Small Business Development Corporation’s credit guidance tells suppliers to consider a directors' guarantee when the customer is a company. Its stated reason is that if the company gets into financial difficulty, the supplier can hold the directors liable for the debt.
ASIC makes the same point from your side of the table. Its director guidance asks you to consider personal guarantees and security before taking on the role, and to seek independent advice if you are unsure.
That cuts against the reason most owners set up a Pty Ltd. Shareholders generally have limited liability for company debts; directors can also have separate personal liabilities. A personal guarantee to a supplier puts your own assets back within that supplier's reach.
The words that decide how much you're on the hook for
The guarantee is usually a few lines long. Four kinds of wording do most of the work. Find them before you read anything else.
| Wording to look for | What it does to you | What to ask for instead |
|---|---|---|
| "All amounts owing" or "all monies" | Covers whatever the company owes this supplier, not one order or a set figure | A dollar cap |
| "Continuing guarantee" | Keeps covering new orders as the account runs, until it ends under its own terms | An end date, or an end on written notice |
| "Interest and costs of recovery" | Adds the supplier's interest and collection costs to the amount you guarantee | Interest and costs inside the cap, not on top |
| "Charges" or "security" over your property | Puts your assets behind the promise, not only your word | Delete it, or limit it to a named asset |
None of these phrases is unusual. Together, they describe an open-ended promise with no exit built in. That is a version you may encounter in a credit application.
How a personal guarantee can stretch to a bigger debt
The account’s credit limit and your guarantee cap answer different questions. The first concerns the credit available to the company. The second limits what the supplier can recover from you under the guarantee.
For an illustrative example, take an account with a $40,000 credit limit and a guarantee capped at $15,000, including interest and recovery costs. Under a clause that keeps that cap fixed unless you agree in writing, raising the account limit to $60,000 does not itself raise your personal cap. An uncapped guarantee needs a separate reading of its scope and variation terms; do not assume the account limit caps your liability.
If you also want a say before the supplier increases the company’s credit limit, negotiate that as a separate restriction. Consent to a higher guarantee cap and consent to a higher account limit are not the same protection.
Does the guarantee end when you resign or sell?
A director guarantee is signed by you, not by the company. So the exit has to be written into the guarantee itself.
Read it for three things:
whether it ends when you stop being a director or shareholder
whether it ends on a date, or on written notice from you
what it says about debts the company runs up after you leave
If it says nothing, don't assume your resignation ends it. Your suppliers don't learn you've left unless you tell them.
Ask each supplier, in writing, to release you from debts the company incurs after your exit date. Keep the release with your records. ASIC's Moneysmart guidance on guarantees says the same in general terms. Ask the lender to confirm the exact amount, when it may reduce, and when it can end. It also warns that once the borrower can't pay, it can be hard to get out of the guarantee.
Selling the company raises the same question. The trade accounts often carry on under the new owners. Your signature may still sit on the guarantee behind them. Put supplier releases on the sale checklist, next to the lease. Our commercial lease guide covers the personal guarantee in a lease, which also needs its own scope and release terms checked.
Worked example: one trade account, five versions of the guarantee
The numbers and contract variations here are illustrative negotiation examples, not statutory protections. The table assumes an enforceable guarantee with the stated wording, valid notices where required, and no other defence or conflicting term.
Kestrel Joinery Pty Ltd opens a trade account with a timber supplier. The credit limit is $40,000 on 30-day terms. Dana, the sole director, signs the director's guarantee on the application.
Two years later, Dana sells her shares and resigns. The new owners keep ordering. Eight months after that, the company goes into liquidation.
It owes the supplier $38,000 in unpaid invoices, all for goods supplied after Dana left and after the supplier received her exit notice, where that version requires notice. For this comparison, all goods were supplied before month 32. The terms let the supplier add $2,500 in recovery costs. The total claim is $40,500.
| Version of the guarantee Dana signed | What the supplier can claim from Dana under that wording |
|---|---|
| As signed: all monies, continuing, costs included, no end | Up to $40,500 ($38,000 + $2,500) |
| Capped at $15,000, interest and costs inside the cap | Up to $15,000 |
| Covers only goods supplied within 36 months of signing | Up to $40,500. All goods were supplied within 36 months; later expiry of the supply window would not erase covered debts |
| Excludes goods supplied after the supplier receives written notice of exit, and the supplier received Dana’s notice | $0 for these invoices: all goods were supplied after receipt of the notice |
| Same notice clause, but Dana never sent the notice | Up to $40,500 |
Two lessons sit in that table. A time limit only helps if it's short enough to matter. And a notice-based exit needs evidence that the supplier received the notice.
The gap between the first row and the fourth is $40,500. It came down to a few lines of wording and one notice.
A personal guarantee rewrite worth asking for
Here is illustrative broad wording, followed by a narrower version to discuss with the supplier and your adviser. The $15,000 cap, 24-month supply window and 14-day confirmation deadline are proposed commercial terms, not legal entitlements. They only apply if agreed.
Broad wording you may encounter:
Guarantee. In consideration of the Supplier extending credit to the Customer, the Guarantor unconditionally and irrevocably guarantees payment of all monies now or in the future owing by the Customer to the Supplier, including interest and costs of recovery. This is a continuing guarantee and remains in force until all monies have been paid in full. The Guarantor charges all of the Guarantor's present and future property with payment of those monies.
Every phrase from the table is in there. There's no cap, no end date and no exit.
The version to ask for:
Guarantee. The Guarantor guarantees payment of amounts owing by the Customer to the Supplier for goods supplied on this account within the coverage period below. The Guarantor’s total aggregate liability under this guarantee must not exceed $15,000, including interest and costs of recovery. Any increase to this cap must be agreed by the Guarantor in writing.
This guarantee covers only goods supplied within 24 months of the date it is signed, subject to the earlier notice cutoff below.
It does not cover goods supplied after the Supplier receives written notice that the Guarantor has ceased to be a director of the Customer, including goods ordered before but supplied after that receipt. The Supplier will confirm receipt and the cutoff date in writing within 14 days. The exclusion operates on receipt of the notice, whether or not that confirmation is sent.
Amounts owing for goods supplied within the coverage period remain covered, subject to the aggregate cap and any applicable defence. Ending the coverage period does not extinguish those existing obligations.
This guarantee does not create a charge or other security over the Guarantor's property.
Under this proposed wording, the guarantee cap remains $15,000 even if the company’s credit limit rises. Increasing the guarantee cap needs your written agreement. Requiring your consent to an increase in the account’s credit limit would need an additional term.
The cutoff is the date the supplier receives the notice, and it applies to goods supplied after that date. Keep proof of receipt. Check the rest of the document for an indemnity, security or other provision that could undermine the intended cap or cutoff; this extract must be integrated with the whole agreement.
The supplier may accept some of these changes and not others. Start with the cap. A cap at or below the credit limit is a simple case to make.
If the supplier won't change the guarantee
You still have options before you sign as-is.
Ask for a lower credit limit. This can reduce the amount of credit extended, but it is not a substitute for an express guarantee cap covering interest and costs.
Offer a different security. A deposit or bank guarantee for a fixed sum may be acceptable. Check what security and fees the bank requires; changing the form of security does not necessarily remove personal exposure.
Start on delivery terms. Pay on delivery for the first few months, then ask for credit once there's a payment history.
Sign, but keep a register. List every guarantee you've given: the supplier, the date, any cap and any end date.
ASIC's advice to directors is plain. If you're uncomfortable or unsure, pause before signing anything. Get independent advice from an accountant, lawyer or financial counsellor.
Where unfair contract terms fit
The guarantee usually sits inside the supplier's terms of trade. Those terms are often a standard form contract: you can accept them or walk away, but you can't change much.
For standard form contracts made or renewed on or after 9 November 2023, the expanded small-business unfair contract terms protections can apply where at least one party has fewer than 100 employees or annual turnover below $10 million. If a term is added or varied on or after that date, the changes apply to that term; the variation does not automatically bring every unchanged term under the expanded regime. Earlier contracts can fall under the earlier rules. The rules sit in the Australian Consumer Law, Schedule 2 to the Competition and Consumer Act 2010 (Cth).
A term a court finds unfair is void. The ACCC's examples of possibly unfair terms include one letting one side change the contract, but not the other. That's worth knowing when the terms let the supplier vary your credit limit or fees at will.
Our guide on what to check before you sign a supplier's terms walks through the unfair terms test clause by clause.
What this doesn't cover
Guarantees for business loans, which run on their own documents. Guarantees you have already been asked to pay: that's a dispute, and it needs a lawyer, not a document check. Home-loan guarantees for family members. And whether the unfair contract terms rules reach a guarantee signed by you personally, which turns on facts no article can see.
Sources checked and draft revised 10 October 2026: ASIC’s director guidance; ASIC Moneysmart’s guarantee guidance; WA Small Business Development Corporation’s credit guidance; and the ACCC’s contracts guidance, linked above. The worked examples and sample wording are illustrative, not court findings. A guarantee turns on its exact wording, so read yours in full.
The guarantee is one clause in a longer document. Upload the credit application and the terms of trade behind it. Every clause is scored, and anything one-sided comes back with a rewrite beside it.
Contractam provides contract review and information, not legal advice. For advice specific to your situation, consult a qualified Australian lawyer. Contractam reviews contracts under Australian law only. See our disclaimer.