How Can You Protect Business Cash Flow With an Arbitration Clause?
January 30, 2023
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Protecting a company’s cash flow is critical to its existence and development. One method is to include an arbitration provision in contracts.
An arbitration clause is a part of a contract that says parties have to settle their disagreements through mediation instead of going to court.
In particular, online arbitration clauses are a faster and less expensive way to resolve disputes and protect a company’s cash flow.
In this post, we will look at how a business may utilize an online arbitration clause to safeguard a company’s cash flow, and the advantages using one can provide.
What Is Arbitration?
Arbitration is a method of alternative dispute resolution (ADR) in which disputes find resolution with the assistance of an arbitrator instead of going to court. However, the arbitrator’s decision, known as an award, is binding and enforceable in court.
Companies often use an online arbitration clause as an alternative to court, as it can be faster, cheaper, and less formal. The process can vary depending on the jurisdiction and the specific arbitration rules that are in place, but generally, it involves the following steps:
- The parties agree to include an arbitration clause in their contract.
- If a dispute arises, one party sends a notice of arbitration to the other party.
- The parties agree on an arbitrator or a panel of arbitrators.
- The parties present their evidence and arguments to the arbitrator or panel.
- The arbitrator or panel makes a decision, known as an award.
- The final and binding award can be enforced in court if necessary.
Businesses can use arbitration to resolve a wide range of disputes, including commercial, employment, and construction disagreements. It is also increasingly used in international conflicts, as it can provide a more neutral forum for resolving issues than going to court in one country.
How Long Does Arbitration Take?
Court battles may drag on for years, during which time a company cannot access the cash at issue. On the other hand, arbitration processes often reach a conclusion within a couple of months.
The expedited arbitration timeline implies that a company will be able to access the monies in dispute sooner, which will assist in protecting cash flow.
What Is the Expense of Arbitration?
Inserting an arbitration provision into a contract also protects business assets by lowering the expense of resolving disputes. Court proceedings may be costly, with corporations undergoing a requirement to pay for lawyers, court fees, and other legal costs.
Alternatively, arbitration processes are less costly since they involve a single arbitrator rather than a panel of judges. This change in approach may enhance a company’s bottom line by lowering the amount of money it needs to spend on legal expenses.
Does Arbitration Provide a Better Outcome?
An arbitration provision also provides a company with greater clarity about the result of a dispute. The outcome of a court case can be hard to predict, and it may be possible to appeal, making it take longer to settle a dispute. Arbitration results are often final and binding.
Therefore, a firm may be more assured about the future outcome of a dispute. By giving a more predictable resolution to conflicts, business owners can feel more confident in the future of their company and the financials that accompany the organization.
What Information Is Divulged in Arbitration?
As an aspect that many appreciate, arbitration provisions may give a degree of secrecy not present in judicial procedures.
Because hearings in court are accessible to the public, any sensitive material shown during the proceedings may become public knowledge. Opposite to that, arbitration hearings are typically secret, which means that sensitive material given during the proceedings is not made public.
This structure may protect the business’ assets by preventing critical information about a company from becoming public knowledge.
Final Thoughts
An arbitration clause may be valuable for preserving a company’s financial flow. It may give faster settlement of problems, lower the cost of resolving disputes, greater assurance in the result of conflicts, and a degree of secrecy not available in court procedures.
If a business wants to keep its cash flow steady and under special protection, it might want to add an arbitration clause to its contracts.
Before inserting any condition about an online arbitration clause in your contract, you should speak with a legal professional since various jurisdictions may have different requirements.
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