Federation of Small Businesses address contract "unfairness"

New research from the Federation of Small Businesses (FSB) suggests half (52 per cent) of small firms have been stung by unfair contract terms with suppliers, costing nearly £4 billion in the last three years.

Mike Cherry
Mike Cherry

Suppliers are failing to make auto-rollover clauses clear up front (24 per cent), tying businesses into lengthy notice periods (22 per cent), charging high early termination fees (20 per cent) and concealing details in small print (20 per cent).

Two in five (40 per cent) respondents said they felt powerless to do anything about unfair contract terms because the supplier was too important or powerful to challenge. This highlights that small firms can be just as vulnerable as consumers when buying goods and services, and they need better protections.

The findings echo Groceries Code and Code of Good Trading Practice for Plants and Flowers concern in recent years about contracts fairness.

FSB national chairman Mike Cherry 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, suggesting 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.

One in ten (11 per cent) 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.

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, said FSB. Trading Standards should also be given the power to take action against suppliers imposing unfair terms.

Cherry added: "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. Tackling unfair contract terms would lead to a more efficient and competitive economy."

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