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Small businesses spending £11.6bn on legal fees per year, research shows

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Commercial disputes are reportedly costing small businesses up to £11.6bn a year in litigation fees, the Federation of Small Businesses (FSB) has warned.

These hefty costs are said to have affected 70% of small to medium enterprises (SMEs) between 2010 and 2015. And with 5.7 million SMEs operating in the UK in 2018, that equates to a potential of 3.9 million businesses facing some kind of dispute last year.

In response to these findings, the Chartered Institute of Arbitrators asked SME owners about their experiences with legal action.

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The study found that 40% SMEs have had to escalate issues to take legal action against other parties.

Just under a third (29%) of respondents said that other parties have taken legal action against them. Most commonly escalated are late-payment disputes, in which court is assumed to be the only means of resolving these issues.

This new study has also found that between the hefty price tag, and the high likelihood of litigation, disputes are of serious concern to SMEs.

When asked “What issues do you face at work or personally?” one in five (20%) SME owners and managing directors admitted that they worry about facing legal action and view it as a serious issue for their company.

While one in five (20%) specified that legal action was a concern, two thirds (66%) of respondents said that they are generally worried about the increasing cost of doing business, which often involves negotiating and resolving disputes.

As well as looking into the issues of concern to SMEs, the study also probed business owners on their attitudes towards disputes and legal action.

Unsurprisingly, the majority of respondents said they are keen to avoid legal action, with 86% saying that they actively seek to resolve disputes before they reach the litigation stages.

Despite this view of dispute avoidance and early resolution as desirable, the level of knowledge surrounding how to negotiate disputes without litigation is shockingly limited.

When asked about how they would choose to deal with disputes, half of respondents admitted to not knowing about alternative dispute resolution, or the practices it refers to.

Tags : businessFederation of Small Businesseslegal disputes
Sarah Clarke

The author Sarah Clarke

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