Negotiation, mediation or arbitration are other methods to consider in trying to settle a dispute, and none creates the kind of adversarial atmosphere that seeking a solution through litigation usually does. Taking your case to court shouldn't be your first choice of remedy, because it's usually expensive and results in hard feelings between the winner and the loser.

Your strategy in deciding how to resolve a problem is naturally to find the method that will achieve the outcome you want at the lowest cost in both time and money. That's why it's always smart to try to negotiate first.

Negotiation

1. Listen to the other party closely and expect the same from them.

2. Don't initiate personal attacks and try not to respond with personal attacks if the other party resorts to them.

3. Try to see the negotiation as a mutual problem-solving, not a debate where you try to score points at the expense of the other person.

4. Make sure you understand the other party's priorities. Is it money or is it really some minor issue that you can resolve by a small change?

5. Remember, the best negotiations occur when both parties leave the table feeling that they've "won," at least in part.

6. When you make a settlement offer, be sure it's called just that so it can't be used against you later if the situation isn't resolved and you end up in court anyway.

7. If a settlement is reached, be prepared to write it down immediately and have both parties sign it. You should volunteer to do the writing so you have control over what goes down on paper.

Mediation

When you're just too angry with the other party to conduct the negotiation without objective help, you may want to consider choosing a mediator acceptable to both of you to conduct the negotiation. Unlike arbitration, which is binding, in mediation neither party is committed up front to accept the mediator's advice. In other words, mediation is a negotiation process in which a third party is brought in to assist with the process. Statistics indicate that mediation works about 80 percent of the time. Where can you find a good mediator? Look to trade or professional groups for referrals or contact a professional arbitration service.

Arbitration

If you choose to have your dispute arbitrated, you and the other party must agree that the arbitrator or arbitration panel has the power to hear the dispute and make a final binding decision that both parties will abide by. If the losing party doesn't comply with the arbitration award, the winner can convert the award to a court judgment and have the judgment enforced like any other.

The advantages to arbitration are that it's cheaper, quicker and more private than a court proceeding, and uses relaxed rules of evidence so that the process doesn't get bogged down in legal maneuvering. The cost of arbitration can range from a straight fee of $300 for disputes involving less than $10,000 to $1,200 plus 1 percent of the amount on disputes that range between $50,000 and $100,000. You can contact the American Arbitration Association on the web or by phone at (212) 484-4000.

Many business owners are recognizing the need to add a mediation or arbitration standard clause to all contracts to ensure that if a dispute should arise, neither party can rush into court before trying other solutions first.

Carlotta Roberts has a J.D. degree from Atlanta Law School. Having worked in the areas of business organization, contracts and employer/employee relations, she's been a consultant to small-business owners since 1981. She worked as a staff attorney concentrating in employment law issues before joining the Small Business Development Center national network in 1986. Currently area director for the Kennesaw State University Small Business Development Center near Atlanta, she has developed two nationally recognized programs: The Cobb Micro Enterprise Council, which won the Vision 2000 award for small-business development in 1999, and the Franchise Institute, developed to provide assistance to franchisees.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.