Money is being tied up in small business disputes

August 2, 2023

Access to justice for small businesses has been and continues to be a hot topic.

Small businesses are less well-equipped to resolve disputes. They do not have the spare time to deal with legal processes and do their day job. Disputes can be complex, can be costly to sort out, and can damage business relationships with a client.

FSB research found that “70% of members experienced at least one commercial dispute between 2010 and 2015. At least 3.4 million commercial disputes involving small and medium-sized businesses.”

The FSB research showed that “72% of disputes were related to late or non-payment from clients, and the remaining 28% were due to contractual issues.”

The FSB says that “the average value of a dispute was over £18,000… This suggests that around £12.4 billion per year (2010-2015) was tied up in disputes.”

It is critical that small businesses are able to minimise the cost of disputes and negative impacts.

The costs of commercial disputes can have a negative impact on the ability to invest and expand.

The FSB identifies three categories of costs:

  • Direct costs – court fees,     lawyer, and expert witnesses fees. Amounts to be written off and potential     damages.
  • Indirect costs – time dedicated     to dealing with the dispute.
  • Opportunity costs – inefficiencies     and delays caused in the business, lost business opportunities, and the     costs associated with disrupted business relations.

The FSB research suggests that “unresolved disputes and the likelihood of having to write off the whole amount under dispute is much greater among smaller businesses than those of larger businesses.”

Some disputes cannot be prevented, and others cannot be resolved earlier. The FSB research suggested “57% of disputes are not resolved informally or formally” In these cases a different form of dispute resolution is needed outside of the Court System.

The FSB research identified that there was a knowledge gap among small business owners about Alternative Dispute Resolution (ADR) and how this can help them to resolve their disputes.

The FSB has identified that there needs to be a reform of the Civil Justice System to resolve disputes swiftly, fairly, and economically. The New Justice Reforms announced on 25thJuly 2023 have made mediation a first stage in the litigation journey for many thousands of civil claims.

However, mediation at a far earlier stage may offer small business owners a much better route to resolving their business disputes. Mediation is quick, cheaper than litigation, you are in control, is confidential, and can result in a win win resolution.

Positive about your Future
“Never cut what you can untie.” - Joseph Joubert
Start Now