By Louis Iannaco
Economically speaking, it’s tough out there. Hard times have hit all industries and flooring is no different. From mills taking modest to severe losses to retailers suffering the woes of the housing downturn, all are in the same boat. This also holds true for the middleman. And, for a growing number of distributors, it’s time to protect themselves.

With many retailers feeling the economic crunch and some unable to pay their bills in a timely fashion, a growing number of wholesalers have taken out insurance just in case their customers are unable to make payments.

For Jeff Hamar, president and CEO of Galleher Corp. in Santa Fe Springs, Calif., the insurance program employed by the company was a logical move. “We implemented the plan in the fall of 2007. Based on our forecasts for business conditions in 2008, we felt insuring our accounts receivable would be a prudent step to take.”

When asked how he approached the insurance company with the concept, Hamar noted, “Being part of a $100 billion company, ITOCHU, really helped. We used its resources and an insurance broker to contact the four leading companies that insure accounts receivable. All were excited about the opportunity to work with Galleher and ITOCHU, and we received aggressive proposals from all of them. We went with Euler Hermes ACI. It is the leader in this field.”

Hamar noted that Galleher views credit insurance as just a component of its overall credit strategy. “Euler Hermes certainly doesn’t take all the risk and there are deductibles,” he said. “Not all our accounts qualify for the high levels of credit we extend to them and Galleher essentially takes the risk for the difference. The policy is designed like most insurance policies to eliminate the potential for large or catastrophic losses.”

Galleher still uses sophisticated modeling tools to manage its credit portfolio. “We believe our experience with our customers and the skill of our credit analysts are the primary reasons we have lower-than-industry bad-debt losses,” Hamar said. “Given the newness of the program we have not made any claims as of now.”

Old hat at insurance game

While some have looked into this practice just recently, others, such as Elias Wilf in Owings Mills, Md., have had an insurance program of this type in operation for some time. “We have been using credit insurance on our accounts for over a decade now,” said Jeff Striegel, president, “and actually the original idea was shared with us by one of our larger builder flooring contractors.” Like Galleher, Elias Wilf uses Euler Hermes ACI.

According to Striegel, when Elias Wilf first looked into taking out insurance it did so by focusing on what plan best suited its needs. “We simply called the insurance company, they visited and presented their various programs, and we made a decision on what we felt was best for our personal situation.”

Striegel noted there are variety of options. Elias Wilf uses a named account list versus blanket policy on all accounts, with a core level deductible. “Essentially, we use the insurance on all accounts with lines exceeding $10,000 and view it as catastrophic coverage to limit degree of potential financial exposure.

“The smaller amounts are handled through an internal credit reserve account that we fund monthly as this will more than likely never be a terribly huge risk. It’s the larger accounts that collectively pose the biggest threat, especially in a down economic period.”

And, as the current times dictate, Striegel believes other companies will continue to seek out ways to protect themselves. “I would have to believe several other suppliers, in general, use it, and almost all of the larger direct importers carry the very same insurance through Euler Hermes ACI.”