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High cost of disputes is damaging small firms

New research from the Federation of Small Businesses shows disputes are costing small firms in England and Wales at least £11.6 billion each year.

The FSB's latest report, Tied Up: Unravelling the dispute resolution process for small firms, reveals the scale of disputes in the economy and the costs spent chasing debts. Nearly three-quarters (72%) of small business legal struggles are down to late or non-payment.

Most small firms (70%) have faced at least one dispute in recent years according to the research. On average, the amount under dispute is £18,000. It can cost a small business a further £17,000 in time and money to resolve the problem.

The consequences of disputes can be devastating for small businesses, ranging from short-term cashflow difficulties right up to insolvency. FSB is calling for a new approach to help small businesses prevent disputes from occurring in the first place and facilitate faster, fairer and cheaper resolution when they do.

Mike Cherry, FSB National Chairman, said: 

"The dispute resolution process faced by small businesses in England and Wales is costly and complicated. Billions of pounds are flowing out of small business pockets as they try to claw back unpaid debts."

Small businesses are most likely to deal with a dispute informally or semi-formally (43%), according to the FSB research, either privately or using an adviser, such as a solicitor or an accountant.

However, nearly a fifth (19%) of firms took their most recent dispute to court. Only 8% used alternative dispute resolution, such as mediation or an arbitrator. Most concerning is that half a million businesses (17%) were left with their most recent dispute unresolved.

"Disputes are inevitable in business, but many small firms don't have the time or resources to deal with them effectively," said Cherry. "We want to see a beefed up system to bring about fewer disputes and faster resolutions for small firms."

The FSB's key recommendations are:

  • The new Small Business Commissioner should develop an online hub, providing guidance and support for SMEs to help prevent disputes or resolve them early;
  • Strengthening alternative dispute resolution (ADR) schemes;
  • Overhauling the civil courts fees system and introducing a specialist commercial track in the lowest courts to make it cheaper, quicker and fairer for small firms.

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