‘Unfair contract terms are costing small firms billions’

Mike Cherry of the FSB
Mike Cherry of the FSB
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AROUND half of small firms have been stung by unfair contract terms with suppliers, which have cost them nearly £4bn in the last three years, according to new research from the Federation of Small Businesses (FSB)

The FSB study found that some suppliers are failing to make auto-rollover clauses clear up front, tying businesses into lengthy notice periods, charging high early termination fees and concealing details in small print.

Two out of five of the respondents to the FSB survey said they felt powerless to do anything about unfair contract terms because the supplier was too important or powerful.

An FSB spokesman said: “This highlights that small firms can be just as vulnerable as consumers when buying goods and services, and they need better protection.”

Mike Cherry, the FSB’s national chairman, said: “Small firms on the bad end of a deal are losing out to the tune of £1.3 billion each year.

“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.

“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 FSB research, ‘Treating Smaller Businesses Like Consumers – Unfair Contract Terms’, sheds light on the scale of the problem.

The study concludes that around 2.8 million small firms have suffered because of unfair contract terms. Most (75 per cent) of those affected had been stung twice or more in the past three years, the FSB found.

One in ten (11 per cent) of small businesses affected by unfair terms were set back by more than £5,000 dealing with a single problem. Two in five (37 per cent) lost more than £1,000 through an unfair agreement with a supplier.

Mr Cherry concluded: “If small firms 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.

He added: “Tackling unfair contract terms would lead to a more efficient and competitive economy.”

On behalf of the FSB, independent research company Verve surveyed 971 members about their experiences, and perceptions, of the terms of contracts for the supply of goods and services to their business.

The survey was conducted between May 30 and June 5 2016.

A Department for Business, Energy and Industrial strategy spokesman said: “The UK has a record number of small businesses which are a key part of our economy, and the Government remains committed to ensuring we help them to grow and flourish.

“The Government is tackling the issues of late payment and will appoint a Small Business Commissioner in 2017 to advise and support small businesses.”