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Buying a new phone system for your small business? Watch out for the ‘free phones’ scam

January 13, 2015

If you are starting a new business, or your business is still in its infancy, it’s tempting to grab any deal that offers something for free – after all you need to save as much money as possible and look after your cash flow.

But if you are offered a free phone or other telecoms equipment – you may find it ends up being anything but free.

Sadly, many small businesses have fallen prey to a scam where they are offered free phones for their business, but are then tied in to overpriced, long-term contracts that can cost them thousands of pounds.

Beware of the ‘free phones’ scam

Like many scams, the ‘free phones’ rip-off keeps resurfacing and many small businesses are still being approached with the offer of a free, or vastly reduced phone system. But this often results in the customer being charged a lot more than the value of the system and being trapped in a lengthy lease.

For example, in 2011 three directors of a telecoms company in Norfolk were jailed for fraud. They enticed companies and charities with the promise of free phones, but those who took up the offer found themselves stuck in leases typically costing between £10,000 and £35,000 over seven or more years!

As a start-up business, your telecom needs are likely to change as you grow – so you don’t want to be trapped into a lease that’s not suitable.

How to spot if it’s a trick

If you’ve been offered a cheap new phone system for your small business, here’s how to recognise if the offer is genuine, or a dirty trick:

The scam usually starts with the promise of the supply of a brand new phone system. It is supported with a proposal that includes a table that purports to compare your current phone costs (if you have them) and future costs.

It implies there are quarterly savings to be made but it is very short on detail and obscures the fact that you would be signing a lease hire agreement. This means you will never own the equipment and in order to keep using it you will have to keep paying.

The deal also involves a long-term commitment to lines and calls, typically for seven years. These long-term deals can be a killer for a start-up – and worse still, you could still find yourself locked-in even if your business fails!

If you are approached with this type of deal, here are the questions to ask, and only accept answers in writing;

If you do decide to sign the contract, make sure you add a clause that it is based on the written responses you have received, and state that it is on that basis that you have signed.

Question 1: What are the actual prices we will be paying for the lines and calls?

The first trick is to make spurious claims on the savings you will make.

If you are already in business you can compare the prices quoted to what you are currently paying. If you are a start-up, or this is your first purchase, you want to be very clear on what you will actually be paying.

Also ask; Are those prices guaranteed or only for the first year? Do you have the right to cancel if they raise prices?

Question 2: Have they quoted for all the services you currently have or all the services you know you want?

Another trick is for the proposal to be for fewer lines than you currently have. If you are currently paying for, or intend to order, an alarm line or lines for PDQs make sure they are included in the current costs but excluded from the proposed costs.

Question 3: Are you comparing like for like?

If you have been trading for a while you will have bills you can use to compare the costs. So, when they present back your existing costs – check them against your actual bills.

Unscrupulous providers can try to pull the wool over your eyes by comparing future monthly costs to bills that were larger than usual, or included one-off costs, so watch out for this wheeze.

Question 4: Specifically ask if the phone system is being provided on a lease hire or lease purchase.

If the phone system is supplied on a lease purchase agreement, what are the options at the end of the contract? Is there a cost for the transfer of title so you actually own it? If so, is that reflected in the savings?

If it is a lease hire, what happens at the end of the agreement? Also what happens if you need to expand the system during the lease? Will any equipment that is added link to the same end date as the original agreement?

Question 5: Ask for a separate quote for the outright purchase of the equipment.

You should ask how much it would cost for you to buy the equipment upfront. Verify this quote by asking other suppliers of that solution for a purchase price – so you can compare. Make sure they break out the different elements of the costs, not just give a total figure.

Some small businesses that have been duped end up tied-in to long agreements and paying up to six times the real value of the equipment.

Reputable suppliers do offer genuine lease purchase deals with 0% or low interest rates. Ask them to confirm the rate of interest being charged – some of the effective interest rates charged would make pay day loan companies look cheap.

Question 6: What equipment is actually being supplied?

Ask for make and models of all elements. Dishonest firms can use equipment that is out of date and declared end of life by the manufacturer.

Research the models on the manufacturer’s websites and see if they are current. This is also a simple way of seeing if the prices quoted are in-line with the real costs.

Question 7: Ask if there are any charges that will be levied that are not identified in the proposals.

This is another con to keep an eye out for. Favourite hidden charges of dishonest providers are; maintenance costs after year one, set up charges on calls, and fees to transfer your numbers from your existing supplier.

Also, ask about cancellation charges. If the worst happens and you need to scale back the business – what will the charges be?

Question 8: Finally, ask who is providing the finance.

If it is a third party finance contract then be wary as it will make it harder if you want to challenge the contract at a later date.

If the finance is provided by the supplier or the equipment manufacturer then you have a greater chance of disputes being resolved.

What the answers will reveal

Reputable suppliers who have a genuine offer should willingly answer all of these questions and agree their responses are included as part of the contract. You should avoid buying from any suppliers that hesitate, prevaricate or refuse to give you answers in full.

Once you have all the answers, re-work their before and after pricing. Does it still show a saving or has it swung to a point where it will cost you more money.

What if you have already signed one of these deals?

If you have signed up to a phone deal that isn’t what it seemed, there is still hope. Check your current bills, are they what was claimed in the original deal? If not, you may have a case.

As demonstrated by the Norfolk case, and if there was a false inducement to purchase – the deal could be struck down by a court. Trading Standards is another option.

If you are a company of fewer than 10 employees, check to see if the supplier is registered with the Ombudsman scheme which offers free, binding arbitration.

There are some genuinely good deals being offered on telephony systems, but there are also far too many dodgy ones. The old adage, ‘if something looks too good to be true’ holds here – if it looks too good, it’s probably best avoided.

About the Author

This article has been written for ByteStart by Dave Millett of Equinox, a leading independent telecom brokerage and consultancy firm.

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