Billions lost 'through unfair contract terms'

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Billions lost 'through unfair contract terms' (image credit: iStock/IPGGutenbergUKLtd)

Small firms across the UK are losing billions of pounds every year as a result of what have been described as "unfair" contract terms by the Federation of Small Businesses (FSB).

Research carried out by the organisation has shown how more than half (52 per cent) of UK small to medium-sized enterprises (SMEs) have lost money as a result of terms the body would deem 'unfair' during the last three years.

In total, the cumulative cost of these financial penalties was shown to be almost £4 billion - the equivalent of more than £1.2 billion per year.

One in ten (11 per cent) respondents were shown to have faced damages of more than £5,000 when dealing with a single problem, while more than one-third (37 per cent) stated they had lost in excess of £1,000.

The most common disputes and perceived unfair practices among contracted suppliers highlighted by the research were: 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).

Each of these issues can have an unwelcome and adverse impact on the customer/supplier relationship, while potentially placing in jeopardy the ongoing survivability of many small businesses up and down the country.

Overall, the research - entitled 'Treating Smaller Businesses Like Consumers - Unfair Contract Terms' - revealed that approximately 2.8 million UK SMEs have been affected by unfair contract terms in the last three years.

Of this group, three-quarters (75 per cent) stated they had been affected by these issues on more than one occasion.

Responding to the results of the survey, FSB national chairman Mike Cherry stated: "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 way to consumers, but they don't have the same guarantees of quality or legal redress in an unfair situation."

He added that SMEs therefore need stronger protection against these unfair practices, with a focus on increased accountability and tackling unfair payment terms in the coming years needed to bolster confidence among this group.