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SMEs losing billions because of unfair contracts

Onerous supply contracts that are hard to get out of are costing UK small firms more than one billion pounds every year, according to the Federation of Small Businesses.

New research from the FSB suggests that half (52%) of small firms have been stung by unfair contract terms with suppliers, costing them nearly £4 billion in the past three years. Four in ten FSB members (42%) raised concerns about utility firms, but there were also concerns about many other services, including ICT goods and services (11%), merchant services (9%) and marketing (6%).

The FSB research shows that almost a quarter of suppliers (24%) are failing to make auto-rollover clauses clear up-front, 22% are tying businesses into lengthy notice periods, 20% are charging high early termination fees and 20% are concealing details in small print.

Two in five (40%) respondents said they felt powerless to do anything about unfair contract terms because the supplier was too important or powerful to challenge.

These unfair practices mean that small firms can be just as vulnerable as consumers when buying goods and services, according to the FSB, and yet SMEs do not get the same levels of protection as consumers.

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.
"Small businesses don't have the time, expertise or purchasing power to scour the market to find and negotiate the best deals," he added. "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 report, Treating Smaller Businesses Like Consumers - Unfair Contract Terms, suggests that 2.8 million small firms have suffered because of unfair contract terms. Most (75%) of those affected had been stung twice or more in the past three years. One in ten (11%) small businesses affected by unfair terms were set back by more than £5,000 dealing with a single problem. Two in five (37%) lost more than £1,000 through an unfair agreement with a supplier.

The FSB is calling on the Government and regulators of energy, financial services and telecoms to focus more explicitly on small business vulnerabilities, and it says Trading Standards should be given the power to take action against suppliers imposing unfair terms.

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