Caught up in an extended decline in the lumber industry sparked by the Great Recession, Specialty Forest Products suffered a significant customer loss and bad debt increase. Trade credit insurance helped jumpstart its recovery.
Protect existing customer base
Protection from catastropic loss
Recessions often change businesses. In 2008-2009, Specialty Forest Products, a Pacific Northwest wholesaler of high-quality hardwood lumber, lost 65% of its industrial customers and saw margins contract and nonpayment risks dramatically increase. “Recovery was difficult, and nobody expected it to take as long as it has,” said Doug Konop, the company’s CFO. “We needed a solution to help protect our existing customer base and support our business through this newfound uncertainty.”
Understandably, the company became much more conservative when it came to extending credit. “One or two bad debts can wipe out our profit for the year,” said Konop. It was at this point the company began exploring credit insurance as a tool for supporting top line growth during their recovery.
“Credit insurance provides us the speed and financial strength to offer competitive terms and go toe-to-toe with our biggest competitors,” said Doug Konop, the company’s CFO
Five years after the recession, Specialty Forest Products added trade credit insurance to its accounts receivable management strategy. The goal was to recover more effectively in a new and dramatically smaller market where larger publicly-held competitors were able to offer larger credit lines much more quickly.
To be competitive, Specialty Forest Products had to overcome its concern that one of its key customers default. “Credit insurance provides us the speed and financial strength to offer competitive terms and go toe-to-toe with our biggest competitors,” said Konop. “It also provides the knowledge we need to go after the right customers who often were previously overlooked. Instead of losing customers because of our conservative limits, we can now focus the conversation on what we do best—service, product and pricing.”
With its accounts receivable now secured with Euler Hermes’ AA rating, Specialty Forest Products’ bank was willing to extend a larger line of credit. This provided the cash flow the company needed to expand its inventory and sales. “We pay our mills in 10 days but don’t see payment from our customer for another 30-60 days,” said Konop. “We need to have a line of credit with our bank in order to make this business work.” Once they recovered, the company also relied on Euler Hermes’ comprehensive credit support and resources to educate its team and streamline its overall credit management and collections offerings.
Overall, credit insurance and the resulting partnership with Euler Hermes has done much more than protect Specialty Forest Products from the risk of a catastrophic loss, it has also contributed to 20% sales growth after their recession recovery. “I look at credit insurance as a strategic advantage, not only for our company but for our industry as a whole,” said Konop. “Recovery is only going to go quicker if everyone extends more credit.”