U.S. Small Businesses Witness Faster Payments Amid Sluggish Sales

Despite facing a sales slump, U.S. small businesses are seeing a silver lining as customer payment times improve, reveals recent data from Xero.

Xero’s Small Business Insights (XSBI) program provides a comprehensive overview of trends from January 2017 to June 2023, based on data from thousands of North American small business subscribers.

Key findings show that small business sales have declined for five consecutive months on a year-over-year basis. In June, there was a 7.7% drop, following a 2.3% decline in May and a 6.7% drop in April. This sales slowdown, which began in mid-2021, is significantly below the pre-pandemic average growth rate of 5.9%.

In contrast, the broader U.S. economy shows a different story. Surpassing most expectations, the U.S. economy grew by 2.5% in Q2 2023. Louise Southall, Economist at Xero, comments on this disparity, stating, “While the U.S. economy is thriving, the XSBI sales results suggest a lack of consumer and business focus on supporting small enterprises.” Southall emphasizes the need for small businesses to build customer loyalty and compete effectively with larger corporations.

Amid these challenges, there’s a positive trend for small businesses. Xero’s data reveals a significant improvement in payment times. In the June quarter, small businesses waited an average of 27.6 days to receive payments, down from 28.7 days in the previous three months, and better than the 2022 average of 27.3 days.

June also saw invoices to small businesses being paid, on average, only 5.9 days late, a significant improvement from the first five months of 2023. Ben Richmond, U.S. Country Manager at Xero, acknowledges this positive trend but adds, “While improved payment times aid cash flow, being paid over a workweek late remains a challenge.”

Recognizing small businesses as the backbone of the U.S. economy, Richmond underscores the importance of prompt bill payments to support the enterprises that employ a significant portion of the U.S. workforce.

Despite the obstacles faced in the first half of 2023, there is optimism for the remainder of the year. The MetLife & U.S. Chamber of Commerce Small Business Index, measuring small business owners‘ confidence, surged by six points in the September quarter, reaching 69.2. With the U.S. unemployment rate standing at a low 3.8% in August, it’s expected that consumer spending will pick up in the latter half of the year.

For small business owners navigating these challenging times, the interplay of declining sales and improved payment times presents both challenges and opportunities. It underscores the need for adaptability, resilience, and strategic thinking as they continue their entrepreneurial journeys.