25 Sep 2016
Author: Stephen Breen
According to research by the Federation of Small Businesses (FSB), more than half of all small businesses are suffering as a result of unfair terms in contracts they hold with suppliers.
52% of the small businesses surveyed have admitted signing up to contracts with inflexible and unclear terms, costing them £4 billion over the last three years.
42% of the FSB’s members have said that the worst terms are found in contracts with telecoms and energy suppliers, and financial service providers – services which are crucial to the survival of a small business.
The FSB believes that as many as 2.8 million small businesses will face additional costs due to terms in their contracts – with 75% of the small businesses surveyed saying that they had already been affected twice or more by the issue during the past three years.
24% of those surveyed also said suppliers did not make auto-rollover clauses clear up front, and 22% complained that they were tied into long notice periods.
20% noted that they were subject to excessive termination fees, and 20% also complained that suppliers concealed details in fine print.
Of those surveyed, around one in ten businesses (11%) that had been affected by unfair contract terms had lost over £5,000 in dealing with just one issue. Around two out of five (37%) lost over £1,000 due to an unfair agreement with one of their suppliers.
The FSB’s chairman Mike Cherry has highlighted that small businesses do not have the time, expertise or purchasing power to find and negotiate the best deals in the market. Two out of five businesses who took part in the survey said they felt they could not challenge their suppliers regarding the unfair terms as the supplier was too important or powerful to lose as one of their business contacts. While small businesses act in a similar way to consumers, they do not have the same legal comebacks or guarantees that consumers enjoy for unfair terms.
The FSB has asked the Government and regulators to address the issue, and “more routinely and explicitly focus on small business vulnerabilities”. It would also like trading standards offices to have the power to take action where a supplier imposes unfair terms on a small business.
Mike Cherry believes that if small business had more protection, it would give them better trust and confidence in the market. Suppliers would have more accountability and businesses would have to waste less time and money on dealing with these issues. The Government has the opportunity, by taking action on unfair contract terms in small business contracts, to create a more efficient and competitive economy.
If you are a small business and you believe that a term in one of your supplier contracts may be unfair, get in touch with our Business team.