Xero Small Business Insights Report: July 2024
Xero, the global small business platform, has released new data from the Xero Small Business Insights (XSBI) program, revealing key trends in small business sales and payment times in North America. Despite a decline in small business sales during the March quarter, year-over-year sales showed improvement, with February marking the first rise in sales in 13 months. The data also indicates that while average payment times have improved slightly, late payment times have worsened, averaging nearly 10 days overdue.
The XSBI program utilizes aggregated and anonymized data from tens of thousands of Xero small business subscribers in North America, covering the period from January 2017 through March 2024. It tracks sales and payment times across four major US Census Bureau regions (West, Midwest, Northeast, and South) to highlight regional differences in small business experiences.
February Sales Mark First Positive Growth in Over a Year
The start of the year showed promising signs for small businesses, with February achieving the first positive month for sales since January 2023. This improvement indicates potential for recovery as sales declines shrink.
– Small business sales fell by 1.8% year-over-year in the March quarter, a smaller decline than the 2.4% year-over-year drop in the December 2023 quarter.
– Sales growth showed improvement between December (-3.5% y/y), January (-2.1% y/y), and February (+1.3% y/y) before declining in March (-4.7% y/y). The March decline may be partially attributed to Good Friday, which occurred in March 2024 instead of April.
– Using the US CPI as a proxy for prices, sales volumes declined an average of 5.1% year-over-year in the March quarter, compared to a 5.6% year-over-year decline in the December quarter.
– Regionally, sales fell most significantly in the Northeast (-3.5% y/y) compared to -4.1% y/y in the December quarter. The Midwest (-3.3% y/y) followed, with the South (-1.7% y/y) and the West (-0.5% y/y) experiencing smaller declines than the national average.
“In the March quarter, we saw the first positive month of sales growth in over a year, signaling a turning point for small business sales and reflecting an improving trend, following a long stretch of sales declines,” said Louise Southall, Economist at Xero. “Widely anticipated interest rate cuts by the Federal Reserve later this year, which would provide more spending power to customers, allowing them to better support local businesses, will hopefully fuel this already positive momentum and benefit small business sales.”
Average Payment Times Improve, but Late Payments Lengthen
Average payment times have shown slight improvement, continuing a positive trend over the past year. However, the most recent data shows a deterioration in late payment times, with payments being made almost two working weeks late.
– Small businesses waited an average of 28.5 days to be paid in the March quarter, 0.2 days shorter than in the December and September quarters (both 28.7 days) and 0.7 days shorter than in the June quarter (29.2 days). This improvement was notably driven by January, when payment times dropped to 26.4 days.
– Invoices took, on average, the longest to be paid in the Northeast (31.4 days), followed by 28.3 days in the South, 27.3 days in the Midwest, and 27.2 days in the West. The March quarter results were better than the December quarter for the Midwest and the West but worsened in the Northeast and the South.
– Small businesses were paid an average of 9.8 days late in the March quarter, which is 0.8 days longer than in the December and September quarters (both 9.0 days) and 0.3 days longer than in the June quarter (9.5 days). Late payment data can be volatile, and this quarterly deterioration was largely due to February, when payments were made 12.6 days late, marking the third-longest late payment time in the series.
“Despite average payment times showing slight improvements, there was a notable increase in late payment durations throughout the March quarter, underscoring the ongoing challenges faced by small businesses,” said Ben Richmond, Managing Director, North America at Xero. “This further highlights the critical role of advisors in collaborating closely with small business clients to implement strategies that encourage prompt invoice payments. Offering initiatives such as diverse payment options, integrating ‘pay now’ features on invoices, and sending timely customer reminders are crucial in helping reduce these extended wait times.”
