We have all witnessed significant gyrations in the financial market over the past few years, especially in the credit markets.

In many ways, the credit markets can be viewed as the bleeding edge of finance: It's where banks and other large businesses borrow to fund daily operating expenses. It is extremely rare for these markets to break down, but when they do, such as they did during the fourth quarter of 2008, access to this funding can evaporate.

The consequences of this flow through the business world - and may stop at your company. After all, if your lender can't access cash in the credit markets, it might be hard to fund your company's revolving line of credit until things stabilize.

Given the impact of credit markets on companies during difficult times, it is prudent for management to have a clear understanding of the liquidity needs and risks of the company. What questions should they be asking?

• What is the status of all of the company's debt?

• When is debt maturing? Does management have a maturity schedule so it can anticipate payment of principal? This is one area where surprises are not going to be well-received; you always want to know this well in advance.

• Is the company at risk of breaching any debt covenants? If you foresee problems here, you need to have open conversations with your lenders in order to address those issues before they materialize.

• How much notice are lenders required to extend before changing the conditions under which they will lend? The company needs to be fully aware when circumstances are approaching that might lead to these actions by a lender.

• Can lenders unilaterally terminate lines of credit or other financing agreements?

• Does the company have a cash forecast? This is a basic requirement: Can management estimate how much cash the company will generate or consume over the next six to nine months? Without this information they are truly flying blind. As part of this exercise, the company should model what happens if customers begin paying slowly in large numbers because they have their own liquidity problems.

• If not, how long will it take for them to pull that information together ?

Are you watching your working capital?

• How are the accounts receivable behaving? Are they stretching out as a consequence of slower-paying customers? And is management keeping a weather eye on expenses?

Attending to all of these can be a substantial amount of work, but they are well worth it. If you keep a close watch on these issues, you will go a long way toward mitigating liquidity risk for your company.

Bruce Rector is president of The Rector Group management consultants. E-mail him at brector@therectorgroup.com or visit www.therectorgroup.com.