“I want better legal support that is cost effective, quick and fit for purpose.” Roni Savage, Founder of Jomas Associates told BBC News recently. She went on to explain that 40% of her clients pay late, with up to 10% failing to pay at all. Talk to any SME (small and medium size enterprise) founder and they will recount a similar tale, though they may say it at a whisper. For any business the problems of late and non-payments are troubling, but for small businesses they can be crippling.
SMEs play a vital role in the UK economy, representing 99.9% of UK businesses and around 60% of jobs and private sector turnover. Yet too many are being strangled by this problem. Total SME late payment debt now stands at £23.4bn, costing SMEs £4.4bn every year in chasing money owed. The burden on SMEs is not just financial; business owners spend on average an hour and a half every day chasing payments and experience sleeplessness and anxiety as a result. The scale of the problem is widely acknowledged, with the Federation of Small Businesses describing the impact of late payments as “devastating”.
While the problem is clear, the ability for SMEs to tackle it isn’t. The legal sector should be able to provide the answers, but for many small businesses engaging with lawyers and the legal process is yet another burden – resolving late payment disputes in traditional courts takes too long, is disproportionately expensive, and risks jeopardising ongoing business relationships.
Tackling late payment issues for smaller businesses
At LawtechUK, we believe that technology can help address this critical issue. For six months, we worked with a consortium of legal, technology and alternative dispute resolution experts, to establish a feasibility study and proof of concept, for an “SME online dispute resolution platform” to provide an affordable, easy to use environment for SMEs to recover unpaid debts, as an optional alternative to the courts.
Imagine a world in which late payments could be resolved at a low price point, within six to eight weeks (significantly faster than through the court process), by deploying a non-adversarial methodology to enable business relationships to be preserved, and providing a digital self-service experience. This could be game-changing for SMEs, saving many of them from going to the wall as they struggle to recoup debt. For the mediation and arbitration community, who would be integral to the success of the platform, this represents a significant market opportunity. For legal practitioners and lawtech providers, products and services that increase engagement with legal issues grow the market overall.
When we scoped what such a service would look like we were clear that it should sit alongside existing court infrastructure, so businesses could elect to resolve their disputes within the platform instead of starting legal proceedings in court. Any resolutions achieved through the platform would be legally binding, with enforcement facilitated through the courts where needed.
For this, integration with court infrastructure and process is ultimately key, as articulated in the vision for civil justice reform, set out by the Master of the Rolls, Sir Geoffrey Vos. So, an SME online dispute platform with state accreditation (what Sir Geoffrey calls a ‘blue tick’) to interface with the court system, for example by means of a seamless transfer of a data file and, as necessary, the allocation of a matter through to the right court, judge or process, at the correct moment if that becomes necessary.
Bringing down the £23.4bn late payment debt number is the target, at the same time reducing costs and court backlogs.
But further imagine a world where small business owners have all the tools at their disposal to remove or reduce the likelihood of them being exposed to abusive payment practices in the first place, because they are well informed and better equipped to agree fair payment terms as standard. This is the wider opportunity of lawtech. Making technology enabled legal services widely available, easy to use, affordable and high value for SMEs. Add to this the potential for linking and automating payments through use of digital and smart contracts and you have an exciting future for businesses with low legal friction and overhead.
Beyond technology, the terminology we use is also important to culture change around this issue. The term “late payments” conjures an image of accidental slippage rather than something deeply damaging that has been consciously and unconsciously built into business models and practices. At a recent House of Lords briefing on the issue hosted by Lord Holmes of Richmond and the Small Business Commissioner, Liz Barclay, the conclusion was that the term “unapproved debt” is far more emphatic and descriptive a label that can bring greater honesty and significance to the problem.
Where do we go from here?
Our goal at LawtechUK is to accelerate innovation and support the market to bring forward the practical change in legal and court services that will best serve business and society. LawtechUK will not be building or funding the development of the online SME dispute resolution platform itself, as that falls outside the scope of our funding.
By publishing the platform study and solution design, our aim is to lay a road for others to travel upon. We are already seeing signs of this; with dispute resolution and technology experts, policy makers and other interested parties, all convening at the recent House of Lords briefing.
None of this requires great leaps in technology; the core barriers are cultural and systemic, and solvable through market leadership, with pioneers in technology and legal working together. Our estimates show that UK businesses would be empowered to resolve over 200,000 disputes over an initial five-year period, accounting for £3.4bn in debt value through the platform. The imperative is clear, the solution has been identified, and the prize is within reach. We hope that by continuing to lend our support to the market, tech pioneers and government, the dispute resolution platform can become a reality for SMEs; creating a market opportunity for the legal sector and enabling SMEs to get on with building their businesses and serving our communities, unhindered.
LawtechUK is a collaborative initiative between Tech Nation, the Lawtech Delivery Panel and the Ministry of Justice, to support the digital transformation of the UK legal sector. LawtechUK focuses on increasing awareness and understanding of lawtech and fostering transformative innovation for the legal sector. The LawtechUK work programme includes a government backed Lawtech Sandbox for innovative R&D, and the development of new platforms, toolkits and online training. It supports and encourages technology pioneers to deliver what business and wider society need from legal services and dispute resolution in the digital era.
