Small businesses count the cost of unfair contract terms

More than half of the UK’s small businesses believe they are being hit by unfair contract terms, according to new research from the Federation of Small Businesses.

Verve gathered data on their behalf and found that firms have potentially lost up to £1.3 billion annually as a result of poor contract terms.

The FSB report – titles Treating Smaller Businesses Like Consumers – Unfair Contract Terms – found that 2.8 million small businesses have been affected.

Of those affected, 75% have “been stung twice or more in the past three years” and have lost out as a result.

The major issues were that suppliers were not making auto-rollover clauses clear or that contracts included lengthy notice periods – noted by 24% and 22% of respondents respectively.

One fifth of firms said they were charged with early termination fees too, placing further pressures on finances, especially when trying to operate on increasingly tight margins.

A similar number revealed that many contract details are hidden into the small print while 40% suggested they felt powerless to challenge contracts given the size of the supplier they were dealing with.

One in ten firms have lost £5,000 when dealing with unfair contract terms while 37% said they had lost a minimum of £1,000.

According to the FSB, small firms have lost close to £4 billion in a three year period from unfair contract terms.

The FSB believes that value is not being provided for small businesses, which is causing them unnecessary financial strain.

Those facing difficulties should consider the range of alternative financial options that might be available to enable them to trade, solidify their positon or expand.

The FSB has also suggested that smaller firms require better protection when entering into supplier contracts, particularly when it comes to unfair terms.

Ultimately it could provide small firms with greater market confidence and trust, while creating a more efficient economy.

By Phil Smith

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