Small firms lose £1.3bn to unfair contracts

Small businesses are losing £1.3bn a year because of unfair contracts with suppliers, the Federation of Small Businesses (FSB) has said.

It said these findings show small businesses are “just as vulnerable as consumers” when buying goods and services, and called for regulations explicitly focusing on protecting them from bad contracts.

In a survey of 971 firms conducted for the FSB, over half said they had been negatively impacted a result of supplier contract terms between mid 2013 and mid 2016. It estimates in total 2.8m firms are likely to have lost out financially over the same period. 

It found small businesses had been adversely affected by automatic rollover clauses, early termination charges and damaging small print, and singled out utilities and financial services as the worse sectors for unfair contracts.

“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,” said Mike Cherry, FSB national chairman.

The report called for the introduction of policies requiring regulators to “explicitly and routinely” focus on small business vulnerabilities.

It also said the remit of the Competitions and Markets Authority should be extended to focus on micro-businesses, and local authority Trading Standards services should be given powers to take action against unfair contract terms.

The survey found between mid 2013 and mid 2016:

  • 24% had been stung by automatic rollover clauses that had not been made clear up front
  • 20% had been hit by damaging terms “hidden in the small print”
  • 20% have been hit by high early termination charges
  • 22% had suffered as a result of lengthy notice periods
  • 31% had suffered twice from unfair contracts, and 24% said they had been hit three times over the three years