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Unfair contract terms costing small businesses billions

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

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

40% of 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.

Results from a recent Hiscox survey, supported by YouGov, also found that as many as 750,000 million UK small and medium-sized businesses are in need of guidance on contracts, in particular 74% of IT and tech business owners admit needing more support and advice when it comes to working their way through contracts.

Mike Cherry, FSB National Chairman, 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 sheds light on the scale of the problem, suggesting 2.8 million small firms have suffered because of unfair contract terms. Most of those affected had been stung twice or more in the past three years.

One in ten small businesses affected by unfair terms were set back by more than £5000 dealing with a single problem, and two in five lost more than £1000 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. Trading Standards should also be given the power to take action against suppliers imposing unfair terms.

Mike Cherry concluded: “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.”

In response to the demands from small business owners calling for more advice on contracts, Hiscox has produced a three-part guide which tackles some of the major issues faced by IT and tech businesses in particular.

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