All businesses will at some point experience issues with suppliers, bad debts or stand-offs with other important stakeholders, and this is likely to be exacerbated by the impact of Coronavirus.
Once the dust settles, these inevitable ‘bumps in the road’ could turn into full blown commercial disputes, which collectively cost UK companies billions of pounds each year. So, what should you do if your business is heading towards a showdown? Chris Clay, Managing Partner of Escalate, looks at how to avoid the pitfalls.
Should you pursue a commercial dispute?
Commercial disputes, late payments and bad debts are a significant issue for UK businesses. Research from the Legal Services Board suggests that UK businesses are losing £40 billion each year due to commercial disputes and bad debt. If we look at the wider impact of late payments on UK SMEs, then this figure becomes even greater, with Xero recently stating that there is £131 billion tied up in late payments.
The problem is exacerbated by the fact that only one in ten businesses think there’s an effective way of resolving issues like this. This is because pursuing a commercial dispute has tended to be a costly, lengthy and risky undertaking for most British businesses.
It’s not hard to see why. Your lawyers will typically bill you based on the amount of time they spend working for you. Given that the average litigation case is around 18 months, it’s not uncommon for these bills to spiral to the level of the damages that you’re claiming.
Even if you can find a lawyer to act for you on a fixed, capped or ‘no win no fee’ basis, you’ll still have to pay up front for disbursements such as court fees, barristers and expert witness fees within a climate where court fees have increased exponentially and recovery of costs for the winning party has reduced drastically.
Add to that the risk that you could be liable for at least some of the defendant’s costs as well as your own if you lose the case.
On top of that, the typical SME doesn’t have the managerial capacity to stay on top of the paperwork and processes associated with a dispute as well as remaining focused on the day-to-day running of the business.
It’s hardly surprising, then, that many companies decide against pursuing a claim and reluctantly write-off what they’re owed.
There’s little doubt that the current system is stacked against SMEs and we think it’s time for change. That’s why we created Escalate.
How can you avoid the pitfalls?
So what can businesses do to minimise the risk of getting involved in a commercial dispute? And how should they manage any disagreements that do arise?
1. Agree expectations from the start
Many disputes arise from the fact the parties didn’t take time to discuss their expectations at the start of the process. Invest time up front in clearly defining your objectives, responsibilities, standards etc to prevent a lack of understanding from becoming an issue later on.
2. Document as much as possible
Having a paper trail of important decisions can act as a reminder of the agreements that have been made, providing evidence that can help to bring both sides back on track. Comprehensive paperwork is also likely to help your case, should the issue ever make it to court.
3. Address issues early
The old adage that ‘a stitch in time saves nine’ applies here. A potentially tricky conversation early on can prevent a problem from growing in a complex legal case that will cost everyone involved considerable time and money.
4. Be firm but fair
Your business is important to you, so nobody expects you to give in at the first sign of a disagreement. But don’t let your emotions cloud your judgement. Step back from the situation and ask an impartial observer for their views.
5. Get an expert involved
If you feel that the other party is unlikely to change its mind, it may be time to seek expert advice. At this point, you should consider getting in touch with Escalate to pursue your commercial dispute.
Escalate has been designed to help with all kinds of commercial disputes and bad debts – from straightforward late payments of £1,000 all the way through to complex multi-million pound cases.
Escalate is already managing a wide variety of commercial disputes and helping to unlock over £100 million in cash for businesses. Could you boost your cashflow by using Escalate?
If you have a commercial dispute or bad debt that you want us to resolve using Escalate, please get in touch with us or one of our partner firms.
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