Small businesses suffer the longest late payment times since the pandemic

New figures from Xero also reveal subdued sales and job growth are hindering small business performance across the UK.

Late payments to UK small businesses surged over the last three months, with payments delayed by more than a week on average, according to the latest Xero Small Business Insights (XSBI) data from Xero, the global small business platform.

Payments to small businesses were made 7.3 days late, on average, between April and June. This is an increase of 1.8 days compared to the March quarter and represents the largest quarterly increase for four years, when pandemic uncertainty prompted a short-term spike. The largest increases in late payments were seen in two industries that are typically paid the fastest: retail trade (+3.1 days to 5.5 days) and hospitality (+3.0 days to 4.4 days).

Small businesses also waited an average of 29.1 days to be paid over the last three months, 1.2 days longer than the previous quarter.

Election impacts small business sentiment

Xero’s data revealed sales volatility between April and June, rising +8.9% y/y (year-on-year) in April due to Easter non-trading days largely falling in March this year. However, sales were more muted in May, with only a 1.3% y/y increase, before falling 5.2% y/y in June. With inflation rising by 2.8% in the year to June 2024, small businesses are still selling fewer goods and services than they did a year ago, forcing them to navigate tricky and uncertain economic conditions.

The sales downturn in June can, in part, be attributed to the impact of inactivity prompted by the UK General Election, during which small business customers likely put off significant purchasing decisions until the result was known. Broader quarterly sales results were more promising, driven by gains in education (+5.9% y/y) and healthcare (+4.9% y/y), sales for small retailers continued to fall (-3.3% y/y). This marks the industry’s second consecutive quarterly decline, while hospitality sales also fell by -0.6% y/y, influenced by unfavourable early summer weather conditions.

Sales performance across UK regions was varied, with strong quarterly results observed in the North East (+5.4% y/y), Yorkshire and the Humber (+3.7% y/y), and Scotland (+3.1% y/y). In contrast, small businesses in Wales saw sales fall by 0.4% y/y, plummeting by 9.3% y/y in June.

Kate Hayward, UK Country Manager at Xero, said: “To wait over a week for payment owed is an unacceptable and unsustainable financial model for small businesses. Our latest data once again highlights the challenging economic environment that small businesses nationwide are facing, without having to chase down ‘unapproved debt’ being hoarded by customers, placing immense strain on both cash flow and business owners’ livelihoods.”

“As our data has shown, small businesses are being held at the mercy of late-paying customers. Labour pledged a robust stance on late payments in their manifesto, and we urge them to swiftly convert their commitments into action through introducing legislation as part of the Draft Audit Committee Bill.”

Decline in job growth

Jobs growth, which has been steadily strengthening since mid-2023, slowed to 1.0% y/y in the last three months, down from 1.5% y/y in the March quarter.

Admin services experienced the sharpest decline, with employment contracting by 6.3% y/y, while healthcare saw the largest increase in jobs (+4.5% y/y), followed by information media and telecommunications (+3.9% y/y), manufacturing and construction (both +2.5% y/y).

Job outcomes also varied across regions in the June quarter. Small business employment declined in the West Midlands (-2.6% y/y) and Yorkshire and the Humber (-0.4% y/y). In contrast, the North East led jobs growth at +5.3% y/y, followed by the East Midlands (+4.1% y/y) and Wales (+2.6% y/y).

Following tentative signs of improvement in the previous quarter, Xero’s UK Small Business Index, part of XSBI, averaged 83 points this quarter, a drop of 12 points compared to the last set of data. The fall in the Index was due to a decline in performance in all four metrics (sales, jobs, wages, time to be paid) that make up this measure.