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Case Study

How Credit Insurance Works

Salt Lake City metal recycler Utah Metal Works uses trade credit insurance to get a handle on the risks inherent in doing business with customers around the world.

By Treasury & Risk Staff | Updated on October 29, 2015
Utah Metal Works is a ‘reverse wholesaler’ of non-ferrous metals destined for recycling. The company purchases metal mostly from manufacturers, demolition companies, and construction businesses in the Salt Lake City area. It grinds, chops, cuts, and sorts, then packages the recyclable metal in a way that prepares it for direct melt.

The companies that buy this material range from small local foundries to corporate giants halfway around the globe. A decade ago, Utah Metal Works accepted the risk that some of its trade receivables might default. But as commodity prices rose and the business expanded both domestically and abroad, the company turned to trade credit insurance to protect itself in the event that a customer fails to pay. Treasury & Risk sat down with Chris Lewon, co-owner and operator of Utah Metal Works, to discuss why credit insurance seemed like a good solution for mitigating receivables risk in a commodity-based business.

T&R:  Before you began insuring your trade receivables, how did you manage credit risk?

Chris Lewon:  In the 1990s, we used credit insurance. Deductibles were very high and our insurer at the time would only underwrite the largest companies, the companies we were not very concerned about. It was hard to get coverage for customers that were smaller than, say, Alcoa. And when we really looked at the premium costs and the size of the deductibles, we realized the risk sharing wasn’t worth what we were paying for it.

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