Commercial disputes costing small businesses £11.6 billion annually

Small businesses in England and Wales are losing £11.6 billion every year to commercial disputes, according to new research.

According to the Federation of Small Businesses, 70% of its members faced a dispute in the five years from 2010.

Of those that did, nearly three quarters came as a result of late or non-payment of invoices for goods and services.

Between 2010 and 2015, a total £62 billion worth of late payments for small firms were tied up in disputes.

An average if £18,000 was owed to small businesses, while the report found that many can pay as much as £17,000 chasing debt and rectifying issues.

The issue for most small businesses is that they lack both the time and the resources to deal with disputes, especially as the resolution process in the UK can be costly and complicated.

As a result small firms are losing money when chasing for finance, which is ultimately putting more pressure on their cash flows.

The FSB has stated the need for a better system that can help to prevent disputes from occurring and that is capable of enabling faster resolutions when they do arise.

The small business commissioner, a role set up by the Government to tackle late payments among other issues, will need to focus on early intervention and prevention, according to FSB Chairman Mike Cherry.

These disputes can cause any number of issues, ranging from short-term cashflow problems to insolvency, which is why the FSB is calling for a solution.

The Department for Business, Energy and Industrial Strategy has already set out a new set of payment reporting measures for larger firms that should aid small businesses.

Under the set-up, large firms and limited liability partnerships must publish details of how quickly they pay suppliers twice a year from next April.

Minister for Small Business Margot James hopes that the move will empower small businesses to drive changes in the UK’s payment culture.

Currently, around 435 of small businesses deal with disputes informally or with the help of an advisor such as an accountant or solicitor.

A fifth had taken a dispute to court while nearly one million firms had their latest dispute still unresolved.

By Phil Smith

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