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Alternative Dispute Resolution
By Michael C. Dennis, MBA, CBF

Business Collection Tips
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More and more often, credit managers are hearing about a concept called Alternative Dispute Resolution. Alternative Dispute Resolution [ADR] is not a new idea. ADR involves the use of specific methods and tools for resolving problems between two parties [such as a buyer and seller] without the necessity of one party suing the other in Court.

There are several advantages of ADR over civil litigation including:

  • Lower total costs

  • A shorter timeline between the time the problem is submitted and a decision is made

  • The possibility of resolving a dispute with completely destroying the business relationship between the two parties

The most common forms of ADR are [1] Mediation and [2] Arbitration. Mediation is a dispute resolution technique in which a neutral third party tries to negotiate a resolution to a dispute between two parties. The mediator does not have the authority to impose his or her decision about the merits of the case on the parties. A mediator does not issue a finding of fact.

There are two fundamentally different types of arbitration. There is binding arbitration, and there is non-binding arbitration. An arbitration hearing is something like a trial. The arbitrator [or arbitrators] will review written evidence and hear from witnesses. Witnesses can be cross-examined. After the hearing, the arbitrator[s] will issue a finding or an award. If the parties submit to binding arbitration, the disputing parties are bound by the decision of the arbitrator[s]. In non-binding arbitration, the parties can agree to accept the decision, or they can continue to pursue their respective positions by filing a lawsuit.

In a dispute between a buyer and seller, the seller usually wants to try to preserve the possibility of doing business again with the customer in the future. This is highly unlikely of the creditor sues the debtor or places the account for collection, but it is possible IF the dispute is submitted to mediation or arbitration.

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