The effects of the credit crunch are now starting to be felt more deeply, touching all of us in both our personal and working lives. The tightening of personal credit as lenders retrench on credit cards and mortgages is mirrored in the arena of business finance, as banks and finance houses have to tell firms that the borrowing that they've become reliant on to fund their trade simply isn't there any more.

From our vantage point as a leading global credit insurer, we have a bird's eye view of the consequences: a sharp increase in the number of firms refusing to pay their suppliers for months - in many cases pressing for an extension to credit terms from the usual 60 days to 150 days or more - and, even more disturbingly, an increase in the number of company failures, particularly in retail and construction sectors. Negotiating extended payment terms to effectively get ‘free' credit isn't unusual and in some industries it's the accepted norm.

Big hitting high street brands, DIY stores and supermarkets have been criticised in the past for imposing extended terms on their suppliers, simply because they can. According to our research* payment times of 60 to over 80 days are by no means unusual in some countries. This can give suppliers real cashflow headaches and, let's face it, while a business can get by in the short-term with poor sales and profits, healthy cashflow is essential to survival. But it's when companies extend payment periods because they can't borrow that the alarm bells should really start ringing. So there are some basic credit management steps that companies need to take to avoid the worst case scenario.

• Always credit-check your prospective customers before entering into a sales contract. Credit reports are a good way of looking for warning signals. Any recent or unexplained changes in ownership, address or scope of activity should prompt you into action to review their credit rating. It's always wise to vet new customers but remember to keep tabs on your long-standing customers too as everyone's financial circumstances can change
  It's always wise to vet new customers but remember to keep tabs on your long-standing customers too as everyone's financial circumstances can change

• Provide details of your terms and conditions to the buyer when you send them an acknowledgment of order and before you send out the goods. Simply having them on the back of the invoice won't do. And watch out for purchase agreements, which are often used by companies to set out the terms on which they'll purchase, and can over-ride your terms as supplier. Equally, ensure that you fulfil your end of the bargain to the letter, so that you don't leave room for disputes over payment or accusations of delaying tactics

• It's sometimes naive to expect companies to pay on time without a prompt from you. So shortly before the invoice is due to be paid, give the customer a polite call, just to remind them. Customers will appreciate it if you let them know in advance about your credit control process, for example "60 days after due date we cease chasing and refer to our debt collecting partner"

• When the cash does come in, be sure to deal with it quickly and keep your accounts up-to-date. Make sure payments are allocated to the correct invoices. Good record management is vital to successful credit management, and customer records can be used over time to help inform you about who is and isn't paying on time

We are able to support our customers through these difficult times, adapting their credit insurance cover to their needs. And credit insurance itself is a real godsend in these uncertain times. While cashflow problems of any kind can hit companies hard, especially small firms, it's when a supplier is clobbered from both sides, with delayed payment from their customers coupled with a block on their borrowing requirements, that credit insurance can keep them buoyant.

What does the future hold? Consumer spending and business prosperity are inextricably linked: at the end of the supply chain someone somewhere is buying - or not buying - goods and services. As the cost of credit rises - and its availability diminishes - exporters across the globe need to be on their guard against falling foul of the ongoing credit crunch. But with the right attitude to credit management - and the protection afforded by credit insurance - businesses can ride out the storm.

*Atradius European Payments Barometer, www.atradius.co.uk [1] (publications section)

Shaun Purrington is Atradius country manager and chair of the Association of British Insurers' (ABI) trade credit committee

For more information call 0800 085 7010 or visit www.atradius.co.uk [2]