A skilled mediator can often find middle ground between parties and settle the case without costly and lengthy litigation. Even if the case does not settle, a mediation can show just how far apart the parties are and reveal unknown facts and weaknesses. Parties can then make educated decisions about how to proceed.
The downsides to mediation are mostly cost and delay. Preparation often involves analyzing the relevant facts and law, as well as drafting a mediation brief. However, these are tasks that would need to be done if the case went straight to litigation, so it is usually not wasted effort if the mediation fails. Obviously, the mediator will also need to be paid.
Delay is usually the primary reason that a business might choose to forego mediation. If a dispute has already dragged on, and there is little reason to believe that the other side has an interest in settling the matter, then a party might choose to continue pushing towards a court ordered resolution.