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Legal disputes are costing small businesses more than £11.5 billion annually, research from the FSB concludes, which backs alternative dispute resolution processes rather than traditional court litigation.

About 70 per cent of small businesses in England and Wales have recently faced at least one dispute, according to the research.  with the average amount disputed being £18,000. However, on average it costs small businesses another £17,000 in legal fees and other costs to deal with an average dispute.

According to the FSB, the “consequences of disputes can be devastating for small businesses, ranging from short-term cashflow difficulties right through to insolvency”.

The federation called for “a new approach to help small businesses prevent disputes from occurring in the first place and facilitate faster, fairer and cheaper resolution”.

The researchers found that small businesses are most likely to deal with a dispute informally. Fewer than a fifth of small enterprises took their most recent dispute to court, while only 8 per cent used alternative dispute resolution, such as mediation or an arbitrator to try to resolve the dispute.

“Small firms are not legal experts, and struggle to navigate the alternative dispute resolution market, Mike Cheery, the federation’s chairman, said. “The English and Welsh courts are slower and more expensive than many comparable countries.

“The dispute resolution process faced by small businesses in England and Wales is costly and complicated. Billions of pounds are flowing out of small business pockets as they try to claw back unpaid debts. We want to see a beefed up system to bring about fewer disputes and faster resolutions for small firms.”

The federation is calling on the small business commissioner – who is part of the Department for Business, Energy and Industrial Strategy – to “become a hub for prevention and early intervention, dispute advice, and for helping small businesses identify and use alternative dispute resolution”.