Supply chain · 21 June 2017

Unreasonable contract demands see half of small firms turn down paid work

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A new study has revealed one in two small UK business owners declined orders in the past 12 months due to unreasonable contract demands from clients and customers.

The research, conducted by financial services firm Hitachi Capital, found that the average founder lost out on sales worth £10,000 after unfair terms and conditions forced their hand.

New startup companies looked most at risk from clients pushing a tough line. Some 28 per cent of recently formed firms lost between £20,001 and £30,000 because of unreasonable contract demands.

The findings showed the more established a company, the more willing owners were to take a sales hit.

Undervaluing a product or service was cited by founders as the biggest reason for rejecting contract terms, affecting a quarter of small business owners.

Just under one in four said a lack of management time and a client’s negative reputation saw them reject contracts, while 23 per cent cited payment terms as too unfair.

For those dependent on sales orders, poor pricing and negative profit margins were driving factors.

Commenting on the experiences of founders, Andy Dodd, managing director at Hitachi Captial Invoice Finance, argued it was a reflection on clients and not the small business community.

“(Owners) are unfortunately having to decline contracts and orders due to unfair payment terms and unreasonable asks, not because they can’t deliver the work.

“Bad payers and unrealistic contractual terms can have a huge impact on any business, especially those that are relatively small or in startup,” he said in a statement.

Manufacturing industries looked to have taken the biggest hit in the last year. Some 42 per of owners in the sector regularly turned down orders due to unreasonable contract demands from customers.

More positively, small retailers and wholesale businesses were the least likely to reject proposed contact terms or decline orders.

Meanwhile, small Yorkshire-based firms appeared most resilient, rejecting fewer contracts than any other region. However, when owners did turn down work, they lost more per contract than the national average.

In the North East of England and the East Midlands, unreasonable contract demands appeared to be a growing concern. These regions saw the greatest increase in small business owners turning down paid work than any other part of the UK in the last 12 months.

Read advice from our supply chain expert on how to negotiate contracts that recognise your interests

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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