U.S. Small Businesses Experience Faster Payment Times, but Sluggish Sales

Despite witnessing a decline in overall sales, U.S. small businesses are observing a silver lining as payment times from customers show signs of improvement, according to recent data released by Xero.

The latest data, a part of Xero’s Small Business Insights (XSBI) program, offers a comprehensive view of trends from January 2017 to June 2023 by aggregating and anonymizing data from tens of thousands of its North American small business subscribers.

Key findings show that the sales across small businesses have been dwindling for five consecutive months when assessed on a year-over-year basis. Specifically, small business sales experienced a dip of 7.7% in June, following a 2.3% decline in May and a 6.7% drop in April. This declining trajectory in sales growth, which started decelerating in mid-2021, is now far from the pre-pandemic average growth rate of 5.9%.

However, the broader U.S. economy tells a different story. Surpassing most forecasts, the U.S. economy witnessed a growth of 2.5% in Q2 2023. Louise Southall, Economist at Xero, commented on this disparity, stating, “While the U.S. economy exhibits robust growth, the XSBI sales results suggest a lack of consumer and business focus on small enterprises for their spending.” Southall emphasized the need for small businesses to strategize on building customer loyalty and ensuring they retain a competitive edge against larger corporations.

Amid these challenges, there’s a bright spot for small businesses. Xero’s data indicated a remarkable improvement in payment times. In the June quarter, small businesses experienced an average wait time of 27.6 days to receive payments, a decrease from the 28.7 days reported in the three months leading up to March. This paints a hopeful picture, especially when compared to the 2022 average wait time of 27.3 days.

June recorded that invoices to small businesses were, on average, paid 5.9 days late, marking a significant improvement from the first five months of 2023. Ben Richmond, U.S. Country Manager at Xero, acknowledged this positive trend but added, “While this improvement in payment times will certainly help with cash flow, being paid more than a work week late is still too long.”

Considering small businesses as the backbone of the U.S. economy, Richmond emphasizes the importance of customers settling their bills promptly to support these enterprises that employ a significant portion of the U.S. workforce.

Despite the setbacks faced in the first half of 2023, there are glimmers of optimism for the remainder of the year. The MetLife & U.S. Chamber of Commerce Small Business Index, which gauges the confidence levels of small business owners, witnessed a leap of six points in the September quarter, registering at 69.2. Additionally, with the U.S. unemployment rate standing low at 3.8% in August, it is anticipated that consumer spending will see an uptick in the latter half of the year.

For small business owners navigating these complex times, the dual narrative of slowed sales but improved payment times offers both challenges and opportunities. It underscores the need for adaptability, resilience, and strategic thinking as they continue their entrepreneurial journeys.

Image: Envato Elements

Joshua Sophy Joshua Sophy is the Editor for Small Business Trends and has been a member of the team for 16 years. A professional journalist with 20 years of experience in traditional media and online media, he attended Waynesburg University and is a member of the Society of Professional Journalists. He has held roles of reporter, editor and publisher, having founded his own local newspaper, the Pottsville Free Press.