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Payment times ‘biggest cause of disputes’ for small business

Small businesses in Australia are paying an average of $130,000 to resolve disputes through formal processes, double the cost of a decade ago, with slow payments causing most of the problems, according to the Small Business Ombudsman.

ASBFEO

Releasing the results of Access to Justice Inquiry (Phase I) research, Australian Small Business and Family Enterprise Ombudsman Kate Carnell said payment times and terms remain the biggest cause of disputes.

kate carnell
  'Can be signficant financial loss':
      Small Business Ombudsman
                Kate Carnell

“We surveyed 1,600 small businesses across Australia and found time and cost are the most significant factors when determining how far to pursue resolution of a dispute. Our research shows 22% of small businesses surveyed had been involved in a serious dispute in the last five years. Small businesses in Australia are paying more than $130,000 to resolve a dispute through formal pathways."

Nine out of 10 were disputes involving small companies were categorised as business-to-business and one in 20 were business-to-government, according to the study.

“Three out of five sought legal advice from a lawyer,” Carnell said. “At this point, the small business owner has to decide whether to pursue the dispute, as the expected costs of further action most often outweigh the potential gain. Half of those surveyed considered the amount of time and effort required was unreasonable.

“We found one third of disputes are not escalated through a formal process; instead the small business owner sought to resolve it by speaking with the other party and coming to an agreement.

“The cost of disputes to small businesses is far reaching. There can be significant financial loss; existing business relationships become strained; it is a time-consuming process and reputations can be seriously damaged.”

Carnell urged small businesses to consult their state Small Business Commissioner or her national office if the direct approach to solving disputes has failed.

 The release of the report begins Phase 2 of the Access to Justice Inquiry, which will explore streamlining processes to improve access to justice for small business owners.