Late payments create major pain points for small businesses
The economy and economic uncertainty are affecting sales and payments for small business owners.
A new report from global small business platform, Xero, found that sales growth for U.S. small
businesses saw their two smallest increases in sales over the previous 20 months, particularly in July and September 2022. The company released the information as part of its Xero Small Business Insights program, which collects data from tens of thousands of its small business subscribers throughout the U.S. and Canada, and tracks various performance metrics.
The company found that while small business owners in the U.S. waited longer to be paid in the quarter ending in September 2022 (26.4 days) as compared to the previous three-month period (26.3 days), the difference was incremental. For small businesses, payment delays can directly affect their cash flow, affect revenue numbers and even create payroll delays.
Louise Southall, economist and small business specialist at Xero explains. “Late payments have a damaging effect on small businesses, making cash flow management more challenging. Small businesses have lots of their own payments to make such as wages, rent, loan repayments and buying new stock. If the small business is being constantly paid late, it can mean they have to dip into retained earnings or take out a loan to cover their own bills while they wait for the late invoice payments to come through. This can then put them in a tight spot financially, especially with today’s high interest rates.”
Sales growth for the same period also saw a significant drop, averaging just 5.9% for the three months ending in September, and down from an average of 12.3% for the second quarter ending in June. Possible reasons for the slowdown can be attributed to the increase in inflation and daily living expenses for consumers, and wages not keeping pace with rising prices, creating less discretionary income.
“Many small businesses rely on strong sales to help bring in positive cash flow, but we’re seeing consumers continue to face greater cost of living pressures from high interest rates, rising rents and an increase in prices for goods and services,” said Chris O’Neill, chief growth officer at Xero in a press release. “These impacts continue to stretch the average consumer’s budget and often divert spending away from small business.”
The impact of inflation will continue to affect consumers and the small business community, forcing owners to consider taking other steps to improve their cash flow positions such as raising prices or seeking other funding sources.
“The good news is there are steps small business owners can take to help ensure they get paid on time,” shares Southall. “These include tapping a trusted financial advisor who will help monitor and manage cash flows, investing in financial management tools that send out automatic invoice reminders, and giving customers instant electronic payment options such as credit cards. These simple steps can empower entrepreneurs with limited resources to keep a firm grasp on their bank account during periods of economic uncertainty.”
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