Management of Receivables in SMEs in the Czech Republic

Abstract

1. Introduction Small and medium business is a specific and most important area of every national economy. Management of small and medium enterprises in comparison with the large companies shows specific features that arise from the nature, characteristics and conditions, in which SMEs operate. Although there is no consensus among the experts as to whether these specifics are a sufficient basis for the formulation of specific principles and methods 3 the practice of these firms confirms that the management of them takes some new features and elements, must solve problems that in the sphere of large companies do not occur or are rather exceptional. Most of the theoretical knowledge of the principles, procedures, methods and management tools have been defined based on the experience and management activities in terms of big companies (which is characterized for example by high frequency and repetitiveness of activities funded and staffing and space for the application of relatively sophisticated methods and procedures, etc.). Application of these findings in terms of SMEs can bring substantially different effects, different questions, because the conditions for SMEs may not provide sufficient space for effective use. Analysis of management practices of SMEs and its thorough comparison of management processes in large companies can help define specific features that this area takes in these companies and add to general knowledge about effective tool for their application in terms of these firms. The urgency of this task is increased not only in extreme situations, such as the current financial crisis and economic recession, but is a necessary part of the process of economic transformation in Central and Eastern European countries as well as can extend the theoretical knowledge. The area of management of receivables is an important part of the companies' management system, on which depends the success of the company, whose importance increases in difficult conditions due to reduced demand for products and services, lack of available funds and other phenomena accompanying the recession. Especially SMEs are more than the large companies hit of lack of funds as a result of inadequate management of this area. As a result of insufficiently treated system of relationships with customers, companies can got into of secondary insolvency and other problems resulting in adjudging insolvency proceedings. This threat is documented, among other things, by development of the number of insolvency actions in the Czech Republic in recent four years--see Table 1. Except for a slight decrease in the last year is the increase in insolvency proceedings very fast--in all the years more than half of the state in the previous year. Good management of receivables does not mean management of receivables only in the situation of late payment or default to pay. It means creation of a whole system of commercial relationships management so that to prevent maximally the risk of late or default payments together with optimizing of the costs for this area management, and on the other hand to facilitate the ability to pay own payables in time. The ability to pay own payables is, as a rule, influenced by more facts (e.g. reduced demand on the market, increased prices, unavailability of resources); in spite of that fact, however, it is possible to consider development of secondary insolvency of SMEs in recent years to be namely the result of late or default payment of receivables by debtors, and therefore we can assume of insufficient attention paid to management of receivables. The solution of course does not mean that the company will not have any funds bound in receivables--absence of offered commercial credits would probably reduce its competitiveness. The whole system of receivables management should be directed to timely payment of as large part of receivables as possible, and to keeping the costs related with receivables management (i. …