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Step 1
Business owners have four options for settling disputes with partners, vendors or customers. Each option is based on different assumptions, and entails a different cost. Therefore, it pays to understand them better.
Option #1 -- Direct Negotiation
It is certainly the cheapest (but not necessarily the easiest) way to resolve a dispute. A good place to start is to get clear about what you want, why, and how much you care for the future relationship with the other person. The next step is finding out how the situation looks from the other person's perspective, a task that requires effective questioning, observing and a genuine willingness to listen. The final step is negotiating an agreement that both parties believe to be better than all other alternatives.
In short, any successful negotiation requires some planning, communication and negotiation skills. Without them, it is easy to end up with no deal, or a bad deal, or even a personal war. -
Step 2
Option #2 -- Mediation
The purpose of mediation is not to determine which party is right or wrong, but to find out how the issues at hand can best be resolved. Thus, a neutral mediator meets with both parties (face-to-face, by phone or online) and helps them communicate and negotiate a mutually acceptable agreement. Needless to say, the mediator has no decision-making authority; only the parties can decide whether and how their dispute can be resolved.
Mediation is particularly useful with both parties are interested to preserve their business relationship. Furthermore, when people participate in mediation, they have everything to gain and nothing to lose. If they are able to reach an agreement, great; otherwise, whatever they said or offered during mediation cannot be used against them in court. -
Step 3
Option #3 -- Arbitration
It means that a business dispute is submitted to a neutral arbitrator. He or she listens to the parties, examines their evidence, and renders a binding decision that both parties must accept, whether they like it or not. Since arbitration (like litigation) is past-oriented, it requires a certain amount of fact-finding. As a result, it takes much more time and money than mediation. -
Step 4
Option #4 -- Litigation
The fourth option is, of course, to let a judge decide which party is right or wrong, considering their evidence, witnesses, and the law. In actuality, though, the vast majority of civil cases never get that far, because they settle out of court. A few days (or even hours) before the trial, the two conflicting parties, assisted by their respective attorneys, prefer to negotiate their own agreement, rather than running the risk of losing in court.
For business owners (as well as for anyone else) litigation has two major drawbacks. First, it inevitably has a detrimental effect on the future relationship between the parties. Second, it can be costly in terms of time, money and stress. Nonetheless, when a business dispute cannot be resolved any other way, litigation is a valid option.
