Treat your (small) customer fairly or pay the price of more legislation?

Economic times are still pretty tough and likely to get tougher for small businesses up and down the country. New research released this month from the Federation of Small Businesses (FSB) suggests that 52% of small businesses in the UK have been stung by unfair contract terms with suppliers, leading to unwanted costs of nearly £4 billion over the last 3 years.

The FSB claims that its research highlights how small businesses can be just as vulnerable as consumers when purchasing goods and services. The FSB has already responded to a consultation carried out by the Department of Business, Innovation & Skill (BIS) on the protections that micro-businesses should have in unregulated markets. As might be expected, the FSB keenly supports the idea of the Government introducing new legislation to protect small businesses and its report identifies the measures that the FSB would like to see introduced.

One of the FSB’s ideas is to widen the remit of the Competition and Markets Authority (CMA) so that the CMA has a routine focus on micro-businesses in addition to consumers. This would, it suggests, work in tandem with a requirement for Trading Standards bodies to have more of a focus on protecting small businesses from detrimental terms. The FSB also suggests that many small businesses would benefit from a clearer understanding of the ins and outs of how to run a successful operation and, in this way, education is vital. This is why the FSB suggests that there is a need for improved access to education and information about good contracting practices.

The FSB’s research highlights various issues that small businesses struggle with. These include:

• Suppliers failing to make auto-roll over clauses clear up-front
• Fixed contract term not made clear
• High early termination fees
• Detrimental terms not being prominent, i.e. in the small print only
• Variations to agreed price not made clear upfront
• Unilateral ability of supplier to change contract
• Insufficient notice of terms or time to consider them
• An inability to challenge successfully these types of unfair terms

In addition, small businesses often feel powerless to challenge suppliers on unfair terms or because the supplier is too important to risk losing. Essentially, many small businesses feel constrained by their size and their own expectations of fair treatment. These issues cut across sectors. Interestingly, the sector where the problem is most common appears to be the tech sector, a sector on which most businesses are dependent to varying degrees.

Ultimately, legislation can sometimes be necessary to drive the right change in behaviour, but one still hopes that there is room for a ‘win-win’ solution if larger businesses can take a longer term view of their customer relationships.