The Access to Justice Inquiry has found small business owners are paying hundreds of thousands of dollars in order to resolve payment disputes, double the cost of a decade ago.
Payment times and terms are the biggest cause of disputes, with small businesses forking out as much as $130,000 during the dispute process.
Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said the cost to pursue matters was the most significant hindrance to small business owners hoping to recoup outstanding payments.
“Our research shows 22 per cent of small businesses surveyed had been involved in a serious dispute in the last five years. Nine out of 10 were business-to-business disputes and one in 20 were business-to-government.
“Three out of five sought legal advice from a lawyer. 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,” Carnell said.
Despite this, Carnell said 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.”
Carnell recommended small business owners in the midst of a payment dispute should consult their Small Business Commissioner or the ombudsman for support.
“The cost of disputes to small businesses is far-reaching. There can be a significant financial loss; existing business relationships become strained; it is a time-consuming process and reputations can be seriously damaged.”