Commercial disputes are reportedly costing small businesses up to £11.6bn a year in litigation fees, the Federation of Small Businesses has reported.
These costs are said to have affected 70% of small to medium enterprises (SMEs) between 2010 and 2015.
There are 5.7 million SMEs operating in the UK in 2018, which means up to 3.9 million businesses potentially faced some sort of workplace disagreement last year.
The new study asked SME owners about their experiences with legal action, in which 40% respondents said they have had to take legal action against other parties.
Just under a third (29%) said that other parties have taken legal action against them.
Late-payment disputes are the most common scenario for small businesses and court is assumed to be the primary way of resolving these issues.
However, The Business Arbitration Scheme by the CIArb offers an alternative to costly and often unnecessary legal proceedings.
The scheme’s rules ensure that the fixed price of £1,250 includes the appointment and court proceedings, alongside a promised award within three months.
The study also found that one in five (20%) SME owners and MDs worry about facing legal action and view it as a serious issue for their company.
Two thirds (66%) of respondents said that they are worried about the increasing cost of doing business, which often involves negotiating and resolving disputes.
Unsurprisingly, 86% of respondents have said that they actively seek to resolve disputes before they reach the litigation stages.
However, half of the respondents admitted to not knowing about alternative dispute resolution (ADR), or the practices it refers to.
Training internal staff in dispute negotiation and mediation techniques can save money and time when compared to protracted litigation.
When questioned on their willingness to spend money on this training, SME owners were willing to pay up £645 on average, with a third saying they would prefer to spend a full day learning.
The CIArb said: “The lack of knowledge surrounding dispute avoidance and resolution does not just extend to the ability of small businesses to negotiate for themselves. There is also a distinct lack of awareness of the representation that is available, even in non-legal disputes.”
“Many of these businesses are unaware of how much they could save by using the dispute appointment service offered by the CIArb.”
The CIArb is a dispute resolution service that offers a range of resolution methods to resolve disagreements, with 16,000 members.