Commercial credit departments face a dilemma: they need to recover overdue money as quickly and easily ms possible but, in so doing, must be careful to avoid jeopardizing longstanding business relationships. They also have to resolve countless billing disputes and misunderstandings diplomatically, while always remembering that unpaid loans can erode the company's profits.
Most credit managers have an arsenal of tactics for dealing with difficult debtors. To these they should add arbitration--a legal alternative that can gain the same results as litigation without the costs, acrimony or interminable delays. Even a small dispute can takes years to wind its way through the courts, while arbitration can provide a legal decision from which one can obtain a court judgment in a matter of weeks or months. In fact, The American Bar Association Section of Litigation recently found that 78 percent of attorneys surveyed believe arbitration is more timely than litigation, and a majority of those surveyed believe arbitration is more cost effective than litigation.
Arbitration procedures are basically streamlined versions of regular court hearings, with all of the usual legal protections. Typically, parties to a dispute may appear at hearings, present evidence, and call and question each other's witnesses. The hearings may take place in person, by phone or by videoconferencing. There are even "document" arbitrations, which resolve disputes solely on the basis of written statements.
Sometimes arbitration is preceded by an attempt at mediation, in which a neutral mediator tries to help the parties resolve the dispute through facilitated dialogue. However, it's up to the two parties to reach an agreement. The mediator cannot impose a settlement.
If mediation fails, the dispute typically moves on to arbitration. Unlike mediation, an arbitrator or arbitration panel makes an award or decision after the case has been presented, and the decision may be made legally binding by converting it to a court judgment. If an arbitrator mishandles a case or misinterprets the law, parties to the dispute can get redress from the courts, the ultimate arbiters, because all arbitration awards are reviewed by courts in a process called "confirmation." Resolving legal disputes outside of court is not as big a leap as one might imagine. Even cases that are litigated are almost never resolved by a court. Instead they are settled outside of court, which raises the obvious question: Why do companies invest so much time and money in litigation, when the cases never get to court? They can accomplish the same outcome through arbitration or mediation, in much less time and at much less cost.
Typically, credit managers prefer arbitration to litigation because the savings on legal costs can be enormous. Litigating a dispute can take years and consume the credit department's time and the company's profits.
Some critics argue that organizations handling arbitrations may be biased in favor of the party that wrote the agreement, especially if that party always uses the same organization. Again, courts are quick to slap down any perceived unfairness, and there are a number of neutral agencies like the National Arbitration Forum that administer arbitration programs, using impartial rules and regulations that have withstood the test of time.
Before picking a program administrator, a credit manager should ask them how they work and get a copy of their rules. It also makes sense to inquire about costs, impartiality and arbitrator qualifications and to clarify whether die arbitrators will be legal professionals or laypeople. Even though you have a legal dispute, some arbitration providers still use arbitrators who have no legal background. It pays to ask.
The arguments in favor of arbitration are solid. About the only stumbling block left is the actual wording of the arbitration agreement. Drafting an arbitration agreement that stands up in court and gets the job done takes a fair amount of skill. …