When costs in the volatile scrap metal industry began to soar above historic norms, Utah Metal Works realized its strategy of using a bad debt reserve to self-insure was becoming increasingly inefficient and still left the company vulnerable to catastrophic losses. Credit insurance provided the company with the protection it needed, along with myriad other benefits.
Implement more efficient risk mitigation strategy
Reduce bad debt reserve
For most of its history, Utah Metal Works, one of the oldest family-owned, non-ferrous metal recycling companies in the western United States, self-insured against credit-related losses. However, when heightened volatility tripled commodity prices and increased average load costs from $25,000 to $40,000, the risk of customer non-payment also increased significantly. The company’s once adequate $60,000 bad debt reserve ballooned to $150,000 to keep up with this heightened risk while still leaving the company vulnerable to catastrophic losses and less stability.
“Scrap metal pricing has many variables and fluctuations in pricing can lead to uncertainty, making it difficult to determine if a customer will default,” said Chris Lewon, the company’s owner-operator. “Not only was our yearly process of building a bad debt reserve becoming risky, it was also becoming more expensive.” This realization caused the company to consider credit insurance for the first time.
“They work with us to get the best coverage for our accounts and cover us if a loss does happen – that’s where the value comes from. It’s a much better strategy than what we had before and extremely warranted.” - Chris Lewon, the company’s owner-operator
The Euler Hermes credit insurance policy Utah Metal Works chose yielded immediate benefits and stability. The cost of the premium was far less than the cost of previous bad debt write-downs and it was tax deductible. The company realized further savings by relying on Euler Hermes as an extension of its credit department and as a risk management partner. “In essence, Euler Hermes became our credit department,” with the resulting cost savings offsetting two-thirds of the policy premium,” said Lewon.
The partnership provides in-depth customer analysis and ongoing account monitoring that was very difficult for the company to achieve stability on its own. “Euler Hermes provides us with a vast amount of resources,” said Lewon. “They work with us to get the best coverage for our accounts and cover us if a loss does happen – that’s where the value comes from. It’s a much better strategy than what we had before and extremely warranted.”
The credit insurance policy has paid off in several ways for Utah Metal Works. When one of the company’s largest customers went bankrupt, the Euler Hermes policy covered that loss with a prompt payment that ensured cash flow was uninterrupted. “We did our due diligence and still took a hit, but we had the protection we needed,” said Lewon. “Euler Hermes handled the claim quickly and efficiently.”
And when one of its uninsured buyers attempted to elude payment, Euler Hermes Collections worked closely with Utah Metal Works to customize a receivables outsourcing program. “This was lost money that we didn’t think we were ever going to see,” said Lewon. “You have to be smart about your cash flow management. Why would I want to take risk? I like to sleep at night.”