FSB: Over half of SMEs stung by unfair contract terms

23rd August 2016

The Federation of Small Businesses (FSB) stated more than half (52 per cent) of small businesses have experienced unfair contract terms with suppliers, resulting in additional costs of almost £4bn in the last three years.

A quarter (24 per cent) of SMEs cited suppliers that are failing to make auto-rollover clauses clear up front, closely followed by tying businesses into lengthy notice periods (22 per cent), charging high early termination fees (20 per cent) and concealing important details in small print (20 per cent).

Two-fifths (40 per cent) of respondents admitted to feeling powerless to do anything about the unfair contract terms due to the supplier being too important to the business or too powerful to challenge.

Mike Cherry, national chairman, FSB, 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 similar ways to consumers, but they don’t have the same guarantees of quality or legal redress in an unfair situation.”

The latest FSB research, titled ‘Treating Smaller Businesses Like Consumers – Unfair Contract Terms’, lifts the lid to the scale of the problem, with some 2.8 million SMEs said to be affected by unfair contract terms in some way.

The FSB claims to drive change, Government and regulators of energy, financial services and telecoms should be more routinely focussed on the vulnerabilities small businesses face. In addition, FSB believes Trading Standards should be handed more powers to take sufficient action against suppliers imposing unfair contractual terms on SMEs.

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

“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.”

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