Seven out of ten SMEs have faced legal disputes due to late payments

The Federation of Small Businesses is calling for an overhaul of the legal system after almost two-thirds of SMEs say they’ve struggled to get clients to pay on time

Seven out of ten SMEs have faced legal disputes due to late payments

From pulling late nights to funding or staff hiccups, launching a new business is always going to be a challenge in the early days. One of the biggest problems, though, is clients who don’t pay up on time. And according to new research from the the Federation of Small Businesses (FSB), it’s costing SMEs £11.6bn each year.

Having surveyed 905 members across England and Wales, the FSB found that 72% of SME struggles are down to late payments. The report also showed that 70% of small firms have had at least one legal dispute in recent years, with the average amount under dispute being £18,000. The problem is further exacerbated by the fact that small businesses end up spending nearly £17,000 chasing payments for each dispute.

Of the companies dealing with late payments, 43% have handled it privately or by using an advisor such as a solicitor or an accountant. Meanwhile, 19% took their most recent dispute to court and 8% used an alternative dispute resolution option such as mediation or an arbitrator to try to get paid. But despite these efforts, 17% were left with their most recent dispute unresolved.

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

In light of this, the FSB is calling on the government to make the process of tackling late payments easier for small businesses. For instance, the organisation is urging the new small business commissioner to provide the business community with an online hub to provide guidance and support for SMEs. “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,” continued Cherry.

Additionally, the FSB wants the government to review the effectiveness of alternative dispute resolutions where disputes cannot be settled informally but do not proceed to court and  involve a neutral third party.

Finally, it believes that a complete overhaul of the civil courts fees system and the introduction of a faster specialist commercial track .  Cherry explained that this “beefed up system” would “bring about fewer disputes and faster resolutions for small firms,” said Cherry.

Given that small business minister Margot James called late payments to small businesses “an outrage” during the Conservative party conference in October, hoping that the government  considers theadvice and put their money where their mouth is.

Eric Johansson
Eric Johansson

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