Supply chain · 22 August 2016

Small businesses charged billions each year due to “unfair” contract terms

contract
One-in-ten firms impacted by “unfair” contract terms experienced setbacks to the tune of over £5,000 dealing with one issue

More than half of small business owners have been stung by “unfair” contract terms with suppliers over the last three years, a new survey has shown.

Costing the UK economy as much as £4bn, 52 per cent of small firms have suffered at the hands of opportunistic suppliers, a survey from the Federation of Small Businesses (FSB) has found.

A quarter of small business owners claimed they had taken a hit due to suppliers failing to make contract auto-rollover clauses clear up front, while 22 per cent cited being unwittingly tied in to lengthy contract notice periods.

One-in-five said they’d been charged high early termination fees, while a further fifth reported unfair terms concealed in the detail of contract terms and conditions.

The research reveals the extent to which small firms remain vulnerable when buying much needed goods and services. Around 40 per cent of respondent business owners said they felt unable to do anything about the unfair contract terms they had been submitted to because a supplier was too important to their business.

FSB national chairman Mike Cherry called for better protection for small firms when entering supplier contracts. “Small business owners don’t have the time, expertise or purchasing power to scour the market to find and negotiate the best deals,” he added.

“They behave in a similar way to consumers, but don’t have the same guarantees of quality or legal redress in an unfair situation. Small firms on the bad end of a deal are losing out to the tune of £1.3bn a year.

“The market is failing to deliver value for money products and services for small business customers,” Cherry went on to say.

One-in-ten firms impacted by unfair contract terms experienced setbacks to the tune of over £5,000 dealing with a single issue, while 40 per cent lost more than £1,000 because of an unfair agreement with a supplier.

The UK’s small and micro businesses also remain disproportionally affected by late paying suppliers. A recent study from the Asset Based Finance Association (ABFA) discovered that the average waiting time for payments from contractors by businesses with less than £1m turnover has reached 71 days – six weeks longer than the average waiting time for larger firms.

Waitrose promise to small suppliers – “We’ll pay you within a week”

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ABOUT THE EXPERT

Fred Heritage is deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London. He previously worked as a reporter at Global Trade Review magazine.

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