Credit crunch. Credit squeeze. Credit crisis. Subprime crisis. Can more business bankruptcies be far behind?

As a result of tightening of the credit markets, many businesses (large and small) are heading for bankruptcy. Businesses that extend credit to other businesses can't imagine turning off the spigot and not selling on credit.

It's fine if you are a fast-food restaurant where your customer orders, your customer pays and then you deliver the order. But most businesses don't work that way. Most businesses, like most people, could not live their lives nearly as well without credit, and the thought of it drying up or become outrageously expensive sends shivers down our collective spine.

Yes, of course, there are those who believe credit is the downfall of the world -- that we should pay as we go. That's just not practical. Can any of us imaging being able to buy a house if we had to pay cash? How about a car?

Consumers get constant information about their credit and how to improve it through articles, books, infomercials and advertising. Our government has regulated consumer credit and mandated certain disclosures and educations before consumers can borrow money.

While reports typically show about 50 percent of the Gross Domestic Product being created by small business, many small-business owners and managers have little formal education about the use of credit in their businesses.

Organizations such as the National Association of Credit Management help a great deal, but their membership, while strong, doesn't reach many small businesses.

Small businesses and entrepreneurs need help deciding when to extend credit to customers and how to make sure they get paid. In case it isn't clear, when a business extends credit to a customer (selling goods or services on credit), it is risking a loss in order to make a profit. If the customer doesn't pay, all the materials, labor and know-how to produce that order have gone for naught.

In addition, there are many hidden costs to extending credit for a business.

The cost of capital (that could be used elsewhere), the cost of staff to monitor credit, the cost of collecting delinquencies and the cost in damage to the relationship with delinquent customers.

These costs escalate the longer-past due a customer gets. Thus, it is very important to have the correct business processes to know how to extend credit, how to manage the credit you extend and how to collect from your customers.

If your business customer does file bankruptcy papers, the proper planning can greatly improve your chances of getting paid.

Through my years of representing business both as borrowers and lenders, I've come to realize there are some very clear steps businesspeople should follow to give themselves the best chance to get P.A.I.D:

P: The business must "prepare" to extend credit. That means thinking through the costs, policies and job responsibilities related to giving customers credit.

A: The owners should have a system of "assessment" to measure who should get credit and under what terms. Credit applications, credit reports and references are tools that should be employed.

I: "Implementing" the policies and systems should be a formal process, following the credit policy manual that the business developed. Proper forms, letters and agreements should be utilized. Credit enhancements (such as guarantees, letters of credit, liens, down payments) should be considered at this point for appropriate customers. Not everyone has the same credit history, so not everyone should get the same credit terms.

D: The business must be prepared to "defend" the policies and decisions by enforcing its rights when a customer defaults. Being too lenient or lax will reduce the impact of the company's credit system. I once had a client with a large number of delinquent customers who were all over their assigned credit limit. When I asked how that happened, the owner said, "We set those things up in the beginning, but we never look at the credit limits when we make a delivery."

Anyone who has a successful business (or intends to have a successful business) could make these decisions and implement these safeguards. The problem is that most entrepreneurs are concerned with the "sale" much more than with the "payment." A sale is a validation, a measure of the success of an idea. Those businesses start to worry about collecting only when the capital and their credit run out. Generally, that is far too late in the process to be successful.

In the face of the credit squeeze, small businesses must pay more attention to whether or not they get paid by their customers. If the customers don't pay and the bank credit lines tighten up, small business can run out of cash.

We all know that "cash is king," but we also know that the proper management of business credit is the means by which most businesses produce cash.