Debt collectors are chasing small businesses which fall into auto-renewing contracts they can no longer afford, the New South Wales Small Business Commissioner says, highlighting problematic behaviour by big-name service providers and the difficulty some smaller firms face when escaping lock-in subscriptions.
New South Wales Small Business Commissioner Chris Lamont says his office has written to subscription services on behalf of small businesses, which have complained of unfair treatment and unclear wording in business-to-business contracts.
In the worst-case scenario, major businesses are simply not providing the services promised to small businesses, Lamont said.
However, Lamont said his office is aware of multiple occasions where auto-renewing contracts have caught small businesses off-guard, leaving those traders exposed to debt collectors when they were unable to terminate their contracts early.
“A business might be unaware that they’ve signed up for another 12 months, two years, or three years, just because the parent agreement or the original agreement contemplates a notice period 90 or 120 days out from the expiry of a contract, and a failure to confirm a termination or an end period actually ticks over the the agreement for another another term,” Lamont told SmartCompany.
Businesses have “sought to terminate outside of what the original agreement said, and then didn’t pay, only to be faced with debt collection activity from the provider,” he continued.
“That’s a really strong concern for me, because you’ve got a small business that’s said, ‘Hey, we we either can’t afford or we don’t want this service anymore’.”
“I’m not satisfied with that… I just think in this day and age than they should be a more sophisticated way of actually resolving that issue.”
The time and cost involved in challenging unfair contracts also weighs against small businesses.
“Small businesses, in many cases, are living hand-to-mouth,” Lamont said.
“They give up all too often and don’t challenge things, because the cost of challenging it may well be more, often greater, than the actual subscription fee or service.”
Without naming and shaming, Lamont confirmed service providers on his office’s radar include those in the technology, advertising, and marketing sectors.
Lamont has urged small businesses to take extra care reading and understanding contracts before they enter into them, potentially saving significant disputes in the future.
Not every communication from the NSW Small Business Commissioner has been met with hostility, either: some bigger firms have acknowledged mistakes, while other investigations revealed problems on both side of the dispute.
Even so, his office would like to see major businesses, with more resources at their disposal than their SME clients, consider alternate ways of responding to customers in tough circumstances before taking drastic action.
“What a lot of small businesses tell my team is that there is no way that they can actually escalate an issue in real time, or just speak to a real person,” Lamont continued.
“It seems to be determined largely by a suite of silence and obscure algorithms as to how they progress in the queue or whether they actually get their matter resolved.”
The office of the NSW Small Business Commissioner has far fewer staff than some of the big businesses it has contacted, but endeavours to 80% of inbound calls within a minute.
“A very small agency like mine can do it… I don’t see why big corporates can’t do that.”
Concerns out of the NSW Small Business Commissioner’s office arrive just weeks before new legislation, imposing upgraded penalties to businesses which include unfair terms in their standard form contracts, come into action.
Separately, the Treasury has opened consultation on unfair trading practices affecting consumers, including small businesses, as the federal government gauges the national appetite for a general unfair trading practicess ban.
The arrival of expanded penalties for unfair contract terms should cause businesses to re-assess their practices, Lamont said.
“But I fear that potentially some of the international players, or some of the other known companies that have had a bit of a track record of this, might find new ways to… not provide that customer interface that we’re seeking when things do go wrong.”
NSW small businesses with lingering concerns can contact the NSW Small Business Commissioner directly, or file a report with the Australian Competition and Consumer Commission.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
