Jobless rate climbs. Tougher bank rules. Wall Street drops. Firms less optimistic . . . With headlines like these how are we ever to feel confident about extending credit to anyone?

Fortunately, the tried and true 5 C's of Credit are still valuable tools for evaluating a client for creditworthiness.

Character - For our existing clients that are looking for more credit, this is the most important of the 5 C's. How they have worked with us in the past in paying their invoices and responding to requests will impact our willingness to extend them more credit or modify their current payment terms.

This is the factor I use for newer clients for whom we've initially set stricter credit terms. Once I've seen that they pay timely and per the plan set for them, I'm more willing to relax/adjust the terms for future orders.

For a brand new client this C is harder to use for analysis because you don't have any history. However, if the client has been in business for a while, you can obtain a credit report to see how the client has dealt with paying other creditors.

Capital - Because of the ever changing aspects of the economy, many companies may be financially sound today and one unexpected event will reduce their ability to pay. Banks have tightened their policies for lending to businesses. This makes our customers turn to us for their credit needs. It is no longer good to ask for their end of year financials regardless of the time of the year. It is best to get the most recent audited financials and the latest interim financials to get a clearer picture of where they are financially at that particular point in time. A client's unwillingness to provide financial statements should serve as a warning. Many smaller companies won't have a traditional audited financial statement, but every company that has been in business for more than a year should have a tax return which can be helpful.

Capacity - Who is your customer? How is their industry faring in today's economy? Who are their customers and how are they faring? Although capacity is a subjective element, we do have the advantage of the internet as a means of "checking out" the client. Research what has been posted about them. Read the financial sections of the news to keep abreast of the good and bad happenings about your current and potential clients and their markets. Use this information to help you create the best credit terms for each client.

Conditions - This area is also aided by the internet. Be aware, stay informed. Think outside of just your industry. What is happening in your client's industry? If you sell in to other states make sure you are aware of what is going on in the economy of those states. Also, keep informed of changing tax laws and legislation that will affect your clients. Find out why your customer is not able to make their payments on time. Is this a onetime issue or a long term way for them to make ends meet?

Collateral - What are you selling and how can that be leveraged to obtain payment? Do you need to file UCC's or liens? Should you be getting personal guarantees? The company I work for sells multiple product lines, some are considered personal property, some are real property and some can be considered as either. It is important that we know how best to leverage the collateral to ensure payment or quick recovery. If you are not sure, research, ask questions, get educated.

It may be tempting to stay with the same old tried and true credit policy and practices you and the company have been using since the dawn of time, but that is not going to work in today's ever changing, volatile economic market. Plans should be devised to anticipate potential pitfalls and changes so that your company does not become a victim of the current economic crisis. It is time for us to become educated and be ever alert and aware of what is happening around us. Be willing to work with management to create different credit terms for specific clients. The future of the company and its largest asset (accounts receivable) is in our hands - Don't be the ostrich with your head in the sand!