£12bn of UK SME funds tied up in disputes, says FSB

Business group calls for review of alternative dispute resolution measures, and an overhaul of the civil courts fees system

Small enterprises in the UK are spending at least £11.6bn per year on legal disputes – 72% of which relate to non- or late payment, according to a new report from the Federation of Small Businesses (FSB).

In Tied Up: Unravelling the Dispute Resolution Process for Small Firms, the body notes that the majority of small companies (70%) have been involved with at least one dispute in recent years, with contested amounts in cash-related spats averaging £18,000.

However, firms are spending on average another £17,000 in legal fees and lost business hours to deal with each dispute.

While almost a fifth of small firms took their most recent disputes to court, only 8% took advantage of alternative dispute resolution (ADR) avenues – such as external mediation or arbitrators – to try and reach terms with their opponents.

The FSB also describes as “deeply concerning” its finding that 17% of firms – equivalent to half a million – were unable to resolve their most recent disputes.

With those figures in mind, the organisation has proposed three recommendations for the government to pursue:

1. the new Small Business Commissioner – who has yet to be announced – should develop an online hub, providing guidance and support for small businesses to help prevent disputes, or resolve them early;
2. there should be a review of ADR procedures for small businesses, with the aim of ensuring that those measures are strengthened; and
3. the civil courts fees system must be overhauled to introduce a specialist commercial track in the lowest courts. This will make it cheaper, quicker and fairer for small firms to litigate.

Building on that third point, the FSB also takes issue with government proposals for a special, online dispute-resolution court, saying that it could detract from the traditional Small Claims Court (SCC).

In the business group’s view, the SCC is “badly in need of its own modernisation”. As such, it should be far more closely linked to the online court than the proposals currently indicate. Plus, its value limit should be raised to £25,000.

FSB national chairman Mike Cherry 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 businesses’ 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.”

He added: “Small firms are not legal experts, and struggle to navigate the ADR 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.”

Find the FSB’s full report here.