A new inquiry has revealed the massive costs facing businesses using formal pathways to resolve a dispute. They include legal costs and the costs associated with the end of business relationships.
A recent survey of 1600 small and medium enterprises (SME) (those employing less than 20 full time equivalent employees) by the Australian Business and Family Enterprise Ombudsman (ABFEO) has found that 22% have been involved in a dispute in the previous 5 years with almost 9 out of 10 of those being business-to-business and only 1 out of 20 disputes being between the business and government. Of the disputes between businesses there was an almost equal split between disputes with customers (45%) and disputes with suppliers (44%).
About 1 in 3 disputes were not escalated through a formal process because:
- it was possible to resolve the dispute another way (41%); or
- the expected costs were considered to be more than the potential gain (15%); or
- the business did not have time to follow up the dispute (11%).
A vast majority (62%) of the businesses with a dispute first sought advice from a lawyer. However, of those that followed formal pathways:
- 60% agreed the dispute was dealt with fairly;
- 50% considered the amount of time and effort required was unreasonable;
- the average cost of the process was $130,000; and
- 2 out of every 3 business relationships ended.
According to the Australian Bureau of Statistics (ABS) small businesses account for over 97% of all Australian businesses – almost 2.2 million entities (1) and contribute 35% of GDP (2). As a result of its importance to the Australian economy and the costs of dispute resolution being so time-consuming and costly, Kate Carnell, the Ombudsman states that “small businesses need dispute resolution that is accessible, timely, affordable and where possible, capable of maintaining business relationships”.
As an effective means of dispute resolution mediation is readily accessible, timely, very affordable and is capable of preserving business relationships. It should be the first step in any dispute.
A copy of the report may be downloaded here.
(1) Australian Bureau of Statistics, 8155.0 Australian Industry, 2016-17
(2) Australian Bureau of Statistics, 8155.0, Table 5, June 2017