Current Affairs

‘Unfair contract terms’ costing small firms billions

Half (52%) of small firms have been stung by unfair contract terms with suppliers, costing nearly £4bn in the last three years.

New research from the Federation of Small Businesses (FSB) found suppliers are failing to make auto-rollover clauses clear (24%), tying business into lengthy notice periods (22%), charging high termination fees (20%) and concealing details in small print (20%).

Two in five (40%) respondents said they felt powerless to do anything about unfair contract terms because the supplier was ‘too important or powerful’ to challenge, highlighting small firms can be just as vulnerable as consumers when buying goods and services.

Mike Cherry, national chairman at the FSB, said small firms “on the bad end of a deal” are losing out to the tune of £1.3bn each year. He said: “We have identified persistent problems with suppliers, across sectors, treating small firms unfairly. This suggests the market is failing to deliver value for money products and services for small business customers.”

He added: “Small businesses don’t have the time, expertise or purchasing power to scour the market to find and negotiate the best deals. Small business owners behave in a similar ways to consumers, but they don’t have the same guarantees of quality or legal redress in an unfair situation.”

The research suggests 2.8 million small firms have suffered because of unfair contract terms.

One in 10 (11%) small businesses affected by unfair terms was set back by more than £5,000 dealing with a single problem. Meanwhile, two in five (37%) lost more than £1,000 through an unfair agreement with a supplier.

The FSB said to drive change in this area, government and regulators of energy, financial services and telecoms should more routinely and explicitly focus on small business vulnerabilities.

Cherry added of small businesses were better protected when entering a contract with a supplier, they would have more confidence and trust in the market.

“Suppliers would be more accountable and businesses would spend less time and money dealing with the fallout. Tackling unfair contract terms would lead to a more efficient and competitive economy,” he said.

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