Disputes cost small businesses billions each year

News Article

The Federation of Small Businesses (FSB) has estimated that legal disputes are costing small businesses more than £11.5 billion annually.

Research conducted by the FSB reveals that around 70 per cent of small businesses in England and Wales have recently faced at least one dispute, with the average amount contested being £18,000.

The report, ‘Tied Up: Unravelling the dispute resolution process for small firms’, reveals for the first time the scale of disputes and the costs spent chasing debts.

The findings include the fact that nearly three quarters (72 per cent) of small business legal struggles are as a result of late or non-payment of goods or services.

According to the Federation, the “consequences of disputes can be devastating for small businesses, ranging from short-term cash flow difficulties right through to insolvency” and it has now called for a “a new approach to help small businesses prevent disputes from occurring in the first place and facilitate faster, fairer and cheaper resolution”.

The study found that small businesses are most likely to deal with a dispute informally. Less than 20 per cent of respondents said they had taken their most recent dispute to court, while only 8 per cent used alternative dispute resolution, such as mediation or an arbitrator to try to resolve the dispute.

FSB Chairman, Mike Cherry, said: “We want to see a beefed up system to bring about fewer disputes and faster resolutions for small firms. The Small Business Commissioner should become a hub for prevention and early intervention, dispute advice, and for helping small businesses identify and use alternative dispute resolution.”

Luke Morgan, a Partner with Palmers, who specialises in alternative dispute resolution, said: “Late payment disputes cause misery for any business but for small businesses who are often operating on a very tight cash flow, late or missed payments can often mean the difference between survival and ceasing trading.

“In some circumstances a late payment can also represent a breach of the original terms of contract so if business owners are concerned about late payment issues they should seek prompt legal advice.

“Palmers offers a Commercial Debt Recovery Scheme to help businesses manage the recovery of their debts and to keep legal costs proportionate. Often a strongly worded solicitor’s letter is all that is needed to recover the outstanding payment but where this fails mediation and other alternative dispute resolution (ADR) procedures can be effective in recovering outstanding business debts. As a last resort, formal recovery action can also be taken.”

For support with business disputes and alternative dispute resolution as well as legal advice on debt recovery, please contact us.