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Online dispute resolution platform for SME late payment disputes

Written by Jenifer Martindale on Monday, 11 July 2022. Posted in Financial management, Commercial law, Legal, Finance

The recently proposed online dispute resolution platform for SME payment disputes sounds good in theory, but will it be effective?

Online dispute resolution platform for SME late payment disputes

The recently proposed online dispute resolution platform for SME payment disputes sounds good in theory, but will it be effective?

Late payments

Late payments can be crippling for SMEs often having to resort to bank finance to pay overheads.  Research carried out at the end of 2020 (by Pay.UK and the Chartered Institute of Credit Management) estimated the collective late payment debt burden on SMEs was £17.5bn, with over 51% of SMEs affected.  The cost to SMEs in chasing payment is estimated at a whopping £5bn per year, with businesses spending on average £500 per month.

To compound the misery, SMEs pursuing debt recovery through the current court system often experience significant delay and expense.

In 2021, the Master of the Rolls, Sir Geoffrey Vos outlined his vision for the vast majority of disputes to be resolved online and without using traditional court procedures.  The government-backed Lawtech UK initiative was launched in 2019 to support the transformation of the UK legal sector through technology.  In August 2021, Lawtech UK published its feasibility study and proof of concept for an SME online dispute resolution ("ODR") platform for late payment disputes.

So, what would the ODR platform offer?

The concept is for the ODR platform to sit alongside the court system and offer an alternative process, comprising a three-tier system:

Advice & Triage

This is the entry point into the platform where users will be offered information about the platform and asked simple questions about the dispute.  If the dispute is suitable for the platform, they will be invited to enter the next tier (or signposted elsewhere if the dispute is not suitable)

Facilitated Negotiation

The user will need to provide further information including a timeline and evidence (such as purchase orders and invoices).  The other party to the dispute will then be invited to join the platform and enter into a process aimed at reaching a negotiated settlement.  It is envisioned that the platform will allow, in time, computerised automatic dispute-resolution tools.

ADR Marketplace

The platform will act as a marketplace for independent dispute resolution providers to offer their services, such as mediation or adjudication for a fixed fee, but with the process remaining within the platform and being documents-only.

The study anticipates the ODR platform will offer:

  • A six-to-eight-week resolution period;
  • A non-adversarial process (to maintain business relationships); and
  • No cost for Tier 1, and a cost of less than £50 for a basic settlement using Tier 2 payable on success only.  Tier 3 is anticipated to have a platform fee of 1% of the value of the claim with the mediator/adjudicator charging 3-10% of the value of the claim. 

For disputes which aren't resolved, the platform will generate a data bundle that should be transferable directly to the court service so that court proceedings can then be pursued.

The study projects the platform could resolve 200,000+ disputes over five years, unlocking £3.4bn of late payments.

Will it be worthwhile?

The ODR platform as a concept could be a quick and cost-effective solution for SME debt recovery, provided the platform is user-friendly and doesn't require legal knowledge or advice.

It potentially offers a resolution within 56 days which the study claims will save an SME 333 days compared to pursuing court proceedings (although that estimate is based on the time for contested court proceedings to reach Trial).  Similarly, the study claims the cost will be much lower compared to the cost of pursuing court proceedings, which it estimates at 45% of the value of the dispute.

The concept also anticipates the platform becoming an extension of SME's accounting administration so that the payment dispute can be generated by one click.

But, the key to the platform working, is debtor engagement.  The debtor will need to agree voluntarily to take part in the process as there doesn't appear to be any suggestion of sanctions on unwilling debtors.  And whilst it is anticipated the outcome of the ODR process will be contractually binding on the parties, enforcement of the outcome may still require a court process.

So, if an SME has a debtor who is simply not paying (perhaps due to their own cashflow problems), why would the debtor choose to engage with the ODR process?

The ODR platform will also only be suitable and effective for pure payment disputes without complex issues of fact i.e. disputes which don't require any legal analysis and advice from lawyers.

Presently, the future of the platform is not certain as it will require someone (not necessarily the Government) to invest an estimated £3.5m in building the platform itself.  A better option may be to invest in updating the antiquated court system to allow between online access and to improve/mandate current pre-action procedures.

About the Author

Jenifer Martindale

Jenifer Martindale

Jenifer Martindale is a partner in Wilsons Solicitors' Property & Commercial Litigation team with over 15 years of experience.  She trained at Wilsons and qualified as a solicitor in 2007.  Jenifer has a broad litigation practice with particular emphasis on commercial disputes but also with expertise in contested property matters.

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