Will it be a soft or a hard landing? One week observers tell us that things are improving, that the economy is well on its way to recovery, the next we learn that the rate of employment is still too low or that consumers are still hesitant to spend and that we are far from being out of the turbulence.

In any case, one thing is for sure and that is that the lending players are still holding tight to credit. Money is harder to come by and that either through self wisdom or out of a certain fear of regulation, major players of the financial world are applying stricter and more stringent rules to borrowing.

What does this means to business operations? How do CFO’s and Finance Director’s take the best approach to optimize their financial position in the actual economical environment?

At CashOnTime, we’ve asked our Credit specialist Ken Young to recommend an approach for each of these scenarios.

Here is advice for the hard  landing.

What to do if the economic recovery does show up for a while? By Ken Young

First of all, if you see an economic storm coming, all bets are off. In such an economy, a new way of doing business emerges in most firms. In real life, when a tropical storm is approaching, home owners put sandbags out front, nail wood sheets over windows and do whatever they can to protect their assets. It is much the same with a company.

A new vision needs to be created and executed, in order to prevent the default rate from growing, which is sure to happen if a stand-still approach is taken. Status quo cannot remain in effect if a company hopes to survive. Many companies will not only want to prevent this default rate from growing, but will also take precipitous action to dramatically reduce or prevent any write-offs.

Assessing exposure and risk level has always been part art and part science. Both areas must be tightened when the economy turns south. Firms, in creating a more stringent framework, may implement changes such as:

• Mandating financial disclosure for any significant line of credit
• Adhering strictly to predetermined financial ratio components
• Requiring more, partially-or fully-secured transactions
• Analyzing the risk/reward on credit insurance and revising the deductible level
• Reducing lines of credit
• Tightening up the customer shipment or service “hold” parameters
• Ratcheting up the collection call volume
• Withdrawing credit entirely, faster, in situations
• Paying more credence to the rumor mill of business intelligence, on customers
• Ensuring that the most relevant and up-to-date information and payment days trending on customers are being utilized

Under such a scenario, sales would drop off and the bottom line would be impacted, so all areas of a firm are under a microscope. Risk areas can be prevented with front end due diligence and a more effective radar scan.  In this way, once the storm passes, with the right vision and policies, all the assets will still be in tact and the enterprise totally viable.