New research from the Federation of Small Businesses (FSB) shows disputes are costing small firms in England and Wales at least £11.6 billion each year. FSB’s latest report, ‘Tied Up: Unravelling the dispute resolution process for small firms’, reveals for the first time 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 businesses (70%) have faced at least one dispute in recent years [1]. On average, the amount under dispute is £18,000. It can cost a small firm a further £17,000 when having to spend time and money dealing with the problem.

The consequences of disputes can be devastating for small businesses, ranging from short-term cash-flow difficulties right through 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.

FSB National Chairman Mike Cherry, said: “Disputes are inevitable in business, but many small firms don’t have the time or resources to deal with them effectively. 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. 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.”

FSB’s key recommendations are:

  • The new Small Business Commissioner should develop an online hub, providing guidance and support for small businesses to help prevent disputes, or resolve disputes early
  • Strengthening alternative dispute resolution (ADR), by reviewing its effectiveness for small businesses
  • 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

Small businesses are most likely to deal with a dispute informally or semi-formally (43%), either privately or using an advisor, such as a solicitor or an accountant, to help resolution.

Nearly a fifth (19%) of firms took their most recent dispute to court. Less than one in 10 (8%) used alternative dispute resolution, such as mediation or an arbitrator to try to resolve their dispute. And it’s deeply concerning that half a million businesses (17%) were left with their most recent dispute unresolved.

Mike Cherry, continued “Small firms are not legal experts, and struggle to navigate the alternative dispute resolution market. The English and Welsh courts are slower and more expensive than many comparable countries. A huge burden would be lifted from small businesses by rebooting the system around prevention and resolution of disputes. Our research shows poor payment practice as the root cause of disputes. We welcome the Government’s Corporate Governance proposals announced last week to tackle this.”