Small print and hidden fees affect all types of customers and businesses. However, their impact on small businesses is highly detrimental as they already run on tight cash flows and strict budgets.
Here we look at the hidden fees small businesses should be aware of, as told by Money Farm.
What are hidden fees
Many companies and business use hidden fees while advertising their various products and services. They attract prospective clients with bold prints, while the not-so-attractive fees remain hidden underneath only to be discovered later by the clients, including small businesses. Such information is usually written in small font size, poor layout, and dense paragraphs to hide away from the eyes of the potential client.
The businesses often do it to fare better than the competitors by luring in more people. However, such practices are illegal and unfair under the Unfair Terms in Consumer Contracts. They are prevalent in almost all industries, including travel and tourism, hotel, restaurant, real estate, and financial service and wealth management providers.
The hidden fees that impact small businesses include employee turnover, property and local taxes, maintenance and repair of equipment, insurance, inventory shrinkage, inefficient use of supplies, and hidden fees of professional service providers. Small businesses tend to discover them much later when the damage has already been done, and they have no other option left but to grumble and pay up.
Implications of hidden fees
The hidden fees have several negative implications for small businesses. For instance, when the small businesses and their owners are not aware of the financial costs associated with their contracts, the hidden fees may eat into their profits and can leave them with no income at all. Similarly, hidden costs in business permits, licenses, and membership fees can also add to the fixed costs of businesses unexpectedly, reducing the profits.
The irony is such that if the small businesses absorb the hidden charges, they lose out on their profits, if they pass it on to the customers, it can be detrimental to the reputation of the businesses. The transfer of such fees on the customer may lead to higher product prices. Small businesses can lose their competitive edge against other brands with similar products if their prices are not competitive enough. It can lead to cancellation of services by the customers and negative word-of-mouth publicity.
Another significant consequence of hidden fees is that they disrupt the normal cash flows of small businesses. The SMEs have ways to reduce spending on what they can predict; however, the unpredictable and uncontrollable hidden fees have a massive impact on the cash flow. It is disheartening to note that according to the Office of National Statistics, up to 90% of the SMEs go out of business due to unmanageable cash flows. Thus, hidden fees can cause drastic impact, including the closure of the business. Hidden fees in small print hurt not only the small businesses owners but also the employees, the transfer of pension funds when changing jobs can lead to fund and platform charges enforced by pension providers.
Examples of hidden Fees
Bank services: A stop payment fee will be charged from the financial institution to the business to stop or withhold a cheque drawn on a business account. An international transaction fee is charged when goods are bought in foreign currency. If you are in Ireland for business, a stamp duty fee is imposed on all credit, debit, ATM, cheque transactions. Other bank fees include Inactivity Fees, Overdraft Fee, Wire Transfer Fee and Excessive Activity Fee.
Card and payment services: Every time a customer returns an item, a chargeback or retrieval fee is charged to the business/retailer from the card payment provider or payment gateway. The bad news business is that online returns in the UK are expected to rise by 27.3% by 2023. Some payment services charge a markup fee for every transaction that goes through their portal. Other credit card processors impose what is called a “PCI (non) compliance” fee on business owners without providing any benefits in exchange for the charge. There is the early termination fee (ETF) in small print to look out for in multi-year contracts, just in case the business gets a better deal in the future and decides to switch payment processors. Other fees to look out for include a batch fee charged for the settlement of deposits each day, terminal and gateway fee charged for the use of internet payment gateways, and hidden/junk fees such as an increase in discount rates, security fees, audit fees, and conversion fees.
Supplier, postal freight services: Suppliers, postal and freight services have hidden fees embedded in their contracts. The hidden fees include an additional shipping and backorder fees, restocking fees, duties fees, demurrage, exchange rate fees, custom broker fees, and other hidden surcharges that can arise from suppliers contacting a forwarder and paying bills. There are hidden freight fees that can be buried in the piece price of goods transported. Other hidden freight fees include cargo insurance, late delivery penalty, fuel surcharges, handling charges and brokerage fees. If the business is on Amazon, watch out for fulfillment fees charged for moving inventory across warehouses and referral fees which is a fixed charge (15%) calculated based on the total selling price.
Investment Services: Business investments are also affected by hidden fees imbedded in contracted by financial and wealth management services. These fees include a trading fee, commission and stamp duty fees, transaction cost, management fees, exit fee, brokerage account fees and hidden markups on fixed-income funds like bonds.
How to avoid hidden fees
These hidden fees can add up to a hefty amount, so small businesses should avoid them for their benefit. The hidden fees can be avoided by being vigilant and cautious. The business owners must read all the documents very carefully, including the fine print, and sign the contract only if they agree to all the mentioned fees. It would be best if you also asked several questions to clarify all the doubts that you may have and make an informed decision. The small businesses should shop around and compare the major financial service providers, professional service providers, and suppliers to zero down on the ones that are more transparent and efficient in terms of fees.