Despite tentative jobs growth, small businesses experienced slow sales growth and rising late payment times in the three months to September, according to the latest data from global small business platform Xero.
Xero’s Small Business Index, based on anonymised and aggregated data from hundreds of thousands of small businesses, fell to 85 points – its lowest reading so far this year.
After seeing the first jobs growth of the year in June, a further boost of 0.8 per cent year-on-year (y/y) across the last three months marked four months of consecutive employment gains for small businesses. While the North West (+3.7 per cent y/y) and London (+2.5 per cent y/y) showed the strongest growth, Wales (-3.5 per cent y/y) and East Midlands (-1.9 per cent y/y) still saw a decline in employment.
Sales slow into Autumn
This employment boost was overshadowed by stagnant sales growth in the last three months. Sales rose just 1.1 per cent y/y in September, and 2.1 per cent y/y across the three months, a stark fall from June’s 8.9 per cent rise and an average of 7.3 per cent y/y in the first half of 2023. Using the September CPI as a proxy for prices, sales actually fell 4.3 per cent in the three months to September.
Sectors most dependent on discretionary spending were most impacted over the last quarter. Retailers showed the largest decline (-2.4 per cent y/y) in sales in the three months to September, with education and training falling by 0.2 per cent y/y after rising 8.6 per cent y/y in the first half of the year. Small businesses in Wales and the North East of England showed the flattest sales trajectory, growing just 0.3 per cent y/y and 1 per cent y/y respectively.
Alex von Schirmeister, UK managing director, Xero, said: “While we’re seeing an encouraging trend of jobs growth for small businesses, slowing sales growth – especially during the busier summer months – illustrates how difficult the climate is for UK small businesses. We all need to shop ‘small’ and support our local firms as they enter a tough winter, against a backdrop of inflation and rising costs.”
On average, small businesses waited 29.4 days to be paid by their customers in the three months to September, which is 0.5 days longer than the average across the first half of 2023. This metric has continued to rise over recent years.
But the late payment times are particularly concerning, with small businesses paid 7.7 days late in September – the highest level in three years. This dragged up the three-month average to 7.1 days late, which is longer than in the first half of 2023 (6.4 days). More monthly data will be needed to understand if this is a firm trend. Small businesses in the manufacturing sector were paid the latest in the three months to September, at an average of 10.1 days late.
“It’s completely unacceptable that late payment times are back to where they were three years ago. When businesses are paid late, it is harder for them to pay their own bills and manage their cash flow let alone invest in growth,” continued von Schirmeister. “We need to see this late payments data trending down, and we hope the full output of the UK Government’s Late Payments Review will bring positive change.”
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