Arbitration is adjudicative: a neutral tribunal hears both sides and issues a binding, enforceable award, much like a private court. Mediation is facilitative: a neutral mediator helps the parties negotiate their own settlement, with no power to impose an outcome.
Mediation suits disputes where the commercial relationship matters, where the numbers are still genuinely negotiable, or where both sides want a faster, lower-cost resolution and are willing to compromise. Arbitration suits disputes where one side needs a definitive, binding ruling — because settlement has already failed, the dispute turns on a legal or technical question that needs a decision rather than a compromise, or enforceability against a reluctant party matters more than preserving the relationship.
Many contracts now build in both: a mediation window before arbitration becomes available, giving parties the chance to settle before committing to a binding process.