Overdue Receivables among Small and Medium Enterprises in the Czech Republic

Abstract

Purpose of the article: The adverse economic situation in the Czech Republic has elicited a rising number of proposals to commence insolvency proceedings. Insolvency proceedings are resolved by the insolvency act from January 2008. The longer the duration of insolvency proceedings, the higher are their costs, which reduce gained yields. Methodology/methods: Research is focused on the area of small and medium-sized enterprises. The research was based on a questionnaire survey in which representatives of small and medium-sized enterprises in the Czech Republic were addressed. The questionnaire contained 18 closed questions.The research results are evaluated and presented through a graphical representation. Scientific aim: The article aims to gain information from representatives of small and medium firms as to how they settle overdue receivables, how they enforce them, whether they have had experience with an arbitration clause and whether they have been participants in insolvency proceedings. Findings: Research has demonstrated that small and medium enterprises, for the most part, do not include an arbitration clause in purchase agreements. Small and medium enterprises tend to utilize court enforcement of receivables in exceptional cases and do not ascertain receivables of a subject in insolvency proceedings. They mostly enforce their irrecoverable receivables themselves. The relative amount of transaction costs connected with enforcement of receivables is in the vicinity of 1 to 5%, and only a small part (1 to 5%) of the volume of overdue receivables in insolvency proceedings are truly successfully enforced. Conclusions: The course of insolvency proceedings can be considered to be an urgent problem in need of a solution, as the longer the duration of insolvency proceedings, the higher the costs for the parties involved and the lower the total amount recovered.