Small firms continue to face a challenging macroeconomic environment, as sales growth in the December festive period hit a three-year low, according to the Xero Small Business Insights (XSBI) data from global small business platform Xero – which covers the three months to December 2023.
The current trading conditions are being “added to by the growing cost of late payments for small businesses. According to new separate findings, this cost hit an estimated £1.6bn in 2023*, more than double the cost observed in 2021.”
Xero’s data revealed that small business sales revenue “fell 1% year-on-year (y/y) in December – the first month of negative y/y growth since February 2021 – at a time when small businesses usually expect bumper sales.”
Across the final quarter of the year, sales “grew just 1.6% y/y compared to a 9.7% increase in 2022, showing how weak festive trading was.”
The weakest results were seen in the retail sector, where sales “fell 1.7% y/y in November and 5.3% y/y in December (-2.2% y/y for the full quarter), when small retailers usually expect buoyant figures.”
This is the first period of consecutive monthly “declines in retail spending since April and May 2020.”
Scottish small business had “a more encouraging sales result, bucking the national trend with a 4.1% y/y growth in the December quarter – the fourth consecutive quarter it has led the gains.”
In contrast, London-based firms saw “the smallest sales increase over the last quarter (0.9% y/y), despite typically being a strong performing region.”
Late payments remain a headache
The latest quarterly data shows small firms “were paid, on average, 6.1 days late during the last three months of 2023.”
This figure shows no signs of improving, with “the average payment still received over a working week beyond the agreed terms.”
Separate analysis from Xero revealed “the cost of late payments to UK small businesses rose to an estimated £1.6 billion in 2023.”
This figure, which is more than double the 2021 estimate, “reflects the cost to the small business of not having access to the unpaid invoice funds and is in addition to what they are owed.”
The increase is largely due “to rising interest rates and an increase in late payment times for those using small business suppliers.”
Alex von Schirmeister, Managing Director UK & Emerging Markets, Xero, said:
“Negative sales growth over the vital holiday period, as the UK officially falls into a recession, shows how difficult the situation is for small business, especially those in retail. The cost of late payments to small businesses has risen to an estimated £1.6 billion. That’s on top of what they are owed for their products and services. Let’s put an end to this unacceptable practice, which is drowning small firms, and call late payments what they are: ‘unapproved debt.’ That means holding big businesses accountable, so their smaller suppliers receive the money they are owed, on time.”
Small business wages growth slows
Wages paid by small businesses “grew 3.2% y/y in the final quarter of the year, although only 2.6% y/y in the month of December, peaking in the hospitality sector (3.9% y/y).”
It is difficult for business owners “to compete for talent against larger competitors, while keeping costs under control and remaining profitable. Wages (excluding bonuses) for all UK businesses rose 6.2% y/y in the same period, highlighting the challenges small firms currently face with hiring and growing.”
When looking at jobs, small businesses continue to “employ more people than a year ago – but growth is well below the pre-Covid average of 3.0% y/y.”
Cost of late payments methodology
The cost of late payments to small businesses for 2023 has “been estimated as the time value of the outstanding invoice value of all small and medium businesses.”
This calculation is based “on businesses with less than than 50 employees for the United Kingdom.”
This is calculated by “applying current interest rates (for small and medium sized businesses) to aggregate small and medium business sales for the period equal to the average days late invoices paid.”