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Billions tied up in small business disputes

Created: February 2017

Disputes may be seen as an inevitable part of doing business, but many small firms are struggling as they don’t have the time or resources needed to deal with them effectively.

New research from the Federation of Small Businesses (FSB) contains some startling facts about the scale of commercial disputes and their effect on the economy. Disputes cost small businesses in England and Wales at least £11.6bn a year. Perhaps not surprisingly, nearly 72 per cent of small business legal problems relate to late or non-payment issues.

The FSB report, ‘Tied Up: Unravelling the dispute resolution process for small firms,’ shows that 70 per cent of small enterprises have faced at least one dispute in recent years, with the amount in contention on average £18,000. However, that’s not all; it can cost a further £17,000 to deal with and resolve the problem.

Needless to say, these disputes can have devastating effects on business operations, ranging from cash-flow difficulties right up to insolvency. When tackling the problem, 43 per cent of firms say they use an informal approach, 8 per cent opt for alternative dispute resolution, whilst 19 per cent resort to the civil courts to get redress. What is clear according to the report, is that compared to larger businesses, smaller firms are not well equipped to deal with the problem on top of the day to day stresses and strains of sustaining and growing their business. What’s more, the cost of disputes can often divert funds away from other important objectives, like investing for growth or taking on new staff.

FSB proposals
What everybody would doubtless like to see would be a system that brings about faster and easier resolution for small firms, with early intervention and more advice on offer to help them use avenues like dispute resolution.

From their findings, the FSB has developed a series of recommendations to address the problems faced, advocating a three-tier system as follows:

Tier One: Prevention, informal and semi-formal resolution
Here, the FSB proposes that the new Small Business Commissioner (SBC) should take a central role in overseeing the provision of guidance and support for small businesses, improving awareness and understanding of commercial relationship management and strategies to aid dispute resolution.

Tier Two: Alternative Dispute Resolution (ADR)
The aim would be to raise awareness and give guidance on ADR amongst smaller firms, including establishing a hub that builds on the Ministry of Justice’s ‘Find a Mediator’ platform. The FSB would like to see a comprehensive review carried out into the commercial ADR sector, focusing on finding alternative ways to meet the needs of smaller businesses.

Tier Three: The civil courts
The third tier involves access to a reliable and accessible civil justice, and a court system that can offer efficient resolution of commercial disputes. The proposal is that reforms should be put in place to make it cheaper, easier and quicker for small businesses to get their disputes dealt with.

With the government showing determination to make Britain one of the best places in the world to do business, a huge burden would undoubtedly be lifted from small businesses by the introduction of measures to tackle the growing problem of disputes.

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